Do you know what happens when you can't repay your home loan?

Do you know how many times the lender takes possession of your property and throws you out of it when the EMI defaults? What are your rights as a consumer and what exactly are the steps involved in the confiscation proceedings? Understand everything

When we buy a house with a home loan, we are very happy when we become the owner of our dream home, the future seems bright, but in reality there are many homeowners who are facing financial difficulties. Due to job losses, accidents, and health issues, they are unable to repay the home loan EMI for months and eventually become unable to repay. Let's understand in detail what happens in such a situation.

When EMI is not paid for 1 to 3 months

You may miss 1-2 EMI payments due to some reason, in which case the bank will give you a reminder notice about the same or a short warning to repay the missed EM next month.But if you fail to pay the EMI for 3 consecutive months, your loan account will be marked as NPA in the lender's book.

It's a serious situation. The bank will mark you as a defaulter and the bank will send you a notice about it.

Make sure you don't ignore the bank notice at this stage and reply to them as soon as possible explaining your situation and the reason for not being able to pay the EMIs.If your credit history is good and your reasons are very genuine, the lender is likely to give you some grace period for repayment.This will also affect your CIBIL as you are marked as a defaulter.

Notice of the last 60 days

If the bank decides to go ahead with the loan even after you have been marked as a defaulter, they will send a full and final 60-day notice under the SARFESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests).

The SARFAESI Act empowers banks and other financial institutions to directly auction mortgaged residential or commercial properties to recover loans from borrowers.

Before this law was introduced in 2002, lenders had to file a lawsuit against the homeowner, and the matter went to court and was a lengthy process that took a lot of time. But after this rule, now the lender can directly auction your property and throw you out of it. Even cooperative banks will come under the purview of SARFAESI Act

This 60-day period is the last chance to repay your EMIs, otherwise, the lender can hold and sell the property after 60 days' notice. After this 60-day period, all the money you owe the bank is in the balance, which is the outstanding loan amount. Either you pay it back to the lender on your own or the lender will auction the house and take their money back.

During this 60-day notice period, you can submit your case before the designated officer and share with them the best plan you can do to pay the EMI immediately. It doesn't matter if they accept your explanation, otherwise they will have to give you a written letter of rejection within 7 days of starting the next step.

During this 60-day period, you can also expect recovery agents at your home who may ask you to clear your dues. Remember that you have certain rights as per RBI rules in case of recovery agents.

• You can ask for the identity of the recovery agents if you want. They need to carry their ID cards and a letter of acknowledgement from the bank
• The Recovery Agent should be an authorized agent as per the Indian Institute of Banking and Finance.
• The recovery agent can only visit from 7 am to 7 pm and if the defaulter is not available, he can only talk to them and not the family members.
• The loan recovery agent should not show disrespect or use any objectionable language or behaviour

In real life, the above rules are not followed properly, and recovery agents are notorious for threatening and insulting loan customers. If that happens, you need to complain to the bank and take up the matter with the banking ombudsman

3 - 30 days notice of the auction in the newspaper

As a next step, the lender will get the property from their appraisers to find out the fair value of the property. At this point, the bidding process begins.

The lender will advertise the property details and indicate all the details such as the reserve price (which will revolve around the fair value of the property), date and time, and the address for the auction of the property.

If the property owner feels that the fair value of the property is too low or not right, they can object and talk to the lender.

4 - Auction of the property and return of excess money

As a final step, the property will be auctioned in the open market and the bank will recover all its dues. The bank is only liable to recover the outstanding amount and the excess amount is not due to the bank. If there is anything left, it must be returned to the owner. So be careful with the price. Nowadays most of the home auctions are held online (e-auction) and you have the data online.

Let me give you some guidance on what you should do if you are unable to repay your home loan amount and are marked as a defaulter.

The best thing to do is sell your home and return it to the bank. There are two reasons why you should sell your home.

• You won't get the best price at auction - home auctions are a distress sale from the bank. The bank wants to repay the loan. So they don't necessarily want to get the best price for your home. If you're selling your home, you'll get a better price.
• This can take a lot of time because the property is stuck in the bank - the bidding process is long and may take a lot of time because it doesn't fit your timeline. If you're selling the home yourself, you can do so quickly because you're ready to negotiate and offer some great deals to potential buyers. You can also offer brokers an extra commission or double commission so that they can find the best one to buy the property.

How to avoid getting on the defaulter list in the future?

What are some of the best ways you should follow to avoid being on the defaulter list?

• Try to keep the EMI amount below 40% of your income - always make sure that the EMI is not a big burden on you.Do not take a loan that is too heavy.
• Try to make as much of a down payment as you can - if possible, make sure you make a large down payment so that your loan balance becomes a small amount that you can handle. It's best to pay more than 40% down.
• Rescheduling Loan - EMIIf you have a large amount and you are on the verge of default every month, try to reduce the EMI amount by increasing the tenure.
• If you have any investments in debt assets such as FD, savings account, insurance policies, PPF or EPF.You can use it to prepay your loan before it becomes due.This is only for people who are overburdened with high EMI amounts every month.