If you fail to pay an EMI, priority should be to clear it quickly
Most people believe a home loan can power an easy ride to a dream home, but they forget that repayment obligations can be long and burdensome. Most borrowers are also oblivious of the legal hassles that may follow if one fails to repay a loan.
This holds true for other borrowings, such as car loans and personal loans, too.
But home loans being bigger in size and longer in tenure, the risk of going into default is much higher.
Debt Recovery Tribunal is the governing body for recovery of unpaid secured and unsecured loans. Under the DRT, banks and other lenders can declare an account a non-performing asset and the loanee a `defaulter' in case the borrower has missed three installments.
Under the DRT-enforced Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, lenders can take action against the borrower in case of a default.
As per the Act, a demand notice needs to be delivered to the borrower by registered post or courier, which, if not possible, needs to be affixed on the property and the photos published in at least two national dailies.
Often, issuance of a demand notice may catch the borrower unawares when a loan account goes into default for no fault of hers/his or because s/he is not aware that s/he has been declared a defaulter by the bank.
Once a borrower is declared a defaulter, the lender hires recovery agents for a pre-determined fees to recover the loan. To safeguard borrowers from intimidating measures adopted by recovery agents, the Reserve Bank of India has fixed strict guidelines to govern the process. These guidelines require the lender to furnish details of the recovery agent, including names and phone numbers, to the borrower as and when a case is forwarded for recovery. The guidelines prohibit manhandling, public humiliation or any other action that may tarnish the image of the bank.
A borrower has the right to object in writing to any notice in DRT or directly to the bank if s/he feels that the total due amount mentioned in the notice is not correct.
The bank is obliged to reply within seven days.
In home loans, a bank may take possession of the property if the borrower fails to clear the stated dues after the demand notice. Howev er, the bank must obtain a legal order from a chief metropolitan magistrate or the district magistrate to physically take possession.
In case the borrower does not allow the bank to take possession of the property, the bank may take help of local police to get the property vacated. The bank-appointed recovery agent has no legal right to get the occupant to vacate the property.
Default on a loan account can happen in many ways.
For instance, if you had taken a loan on January 30, 2010, and after paying regular installments till July 30, if you failed to pay your installments for August, September and October, the bank can declare the case as NPA and send notices for the total amount along with interest.
An account can be declared NPA even if the un paid installments are not in chronological order and scattered over a period of time. Hence, it is important to clear off any prior debt along with interest first in order to avoid being categorised as a defaulter. In fact, clearing of old debt should be a priority even if that requires you to hold up the current installment in case of a fund shortage.
The appeal process in such cases is not as easy as it may appear. In order to file an appeal with DRAT, the borrower must pay the application fee along with 25 per cent of the total amount demanded by bank, which is difficult for borrowers at times because of their poor financial condition.
