In continuation with my last column, where I looked at the procedures followed by housing finance institutions in case borrowers default on home loans, we have received a series of reader queries. This column answers some of those issues.
Ownership
When a housing loan is sanctioned to a borrower, the ownership of the property actually rests with the lender. This is legally documented when the loan agreement is signed between the borrower and the lender, and notes that in case of default the lender will invoke their rights and transfer the ownership to their name and deal with it in such manner that would assist them in clearing the outstanding amount. This, home loan borrowers are only ‘staying’ in the house and can claim complete ownership only after repaying the loan in full and after they receive the original documents.
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In case of a default by the borrower, as detailed in the previous article, the lenders will invoke their right of ownership and retain the right to sell the property if deemed necessary.
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A physical inspection of the property by the bidders is allowed. Bidders can visit the premises and also assess the property’s market value before bidding.
Borrower’srights
A case of default is established if the outstanding loan amount is in excess of 20 per cent of the loan sanctioned plus interest payable as on that day and continuous non-payment of three months of EMIs, as the case may be. Further, after establishing default, notice is served on the borrower and the rest of the formalities are initiated. During this time, the borrower is given adequate time to pay off the remaining dues and reclaim the property and thus stop the rest of the auction procedure.
What is important to note here is that a borrower cannot approach a court at this time, since the Sarfaesi ((Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest) Act has removed the court’s jurisdiction for home loan default cases. The borrower can appeal for any grievances only with the Debt Recovery Tribunal (DRT). Any appeal to the Court will be directed to DRT for resolution. This was done to speed up the process of loan recoveries for banks and HFIs.
Bidding process
The HFI that is holding the auction will have clear title of ownership of the property. After a successful bid, the HFI or bank will give the buyer a Sale Certificate, which is similar to the Sale Deed. The details are published meticulously in the local newspapers before the auction (30 days prior to the auction date) and prospective bidders can approach the HFI and satisfy themselves about the legalities of the property.