® 
Defaulted on your home loan, car loan or any other EMI? Continue reading to find out the rights you’re entitled to.
RBI established the Fair Practices Code to safeguard the interests of the borrower. These guidelines ensure that the borrower is not harassed unfairly in case of defaults of loans and gives the lender the opportunity to recover the debt.
Home loans or car loans are long term commitments. In these times of uncertainty, any borrower can face unfortunate instances of loan defaults or late payments. A borrower is laden with guilt when they default on a loan. There is also the fear of legal actions and asset confiscation which can cause them immense mental pressure due to the apparent shame it may bring upon them.
A borrower must understand that they too have rights that give them equal legal means and support to protect them from harassment by the lender. The borrower need not be twined in these issues if they knew their rights. That is what this article aims at enlightening;
Additional Read - Guide To Debt Settlement
What is a Loan Default? When do you become a ‘Defaulter’?
A Loan Default is when you have not made a payment towards your loan for more than 90 days. The bank then initiates recovery proceedings against you.
In the event of non-payment of dues for more than 90 days, the lender has the legal right to confiscate the home or car you purchased with the loan money, and sell it to recover the dues. However, banks need to send the borrower the necessary notifications before they can sell the asset.
Being a loan defaulter does not automatically make you a criminal. It also does not negate your right to be treated fairly and respectfully. It's difficult to let go of an asset that was paid for with life savings. However, you must be prepared in the event of an unanticipated slowdown that results in job loss or firm failure. Remember that even if the borrower defaults, he or she does not lose all rights to the asset or to fair treatment. When dealing with a loan defaulter, banks and financial institutions have a responsibility to follow a protocol.
-
Right to Notice
Before initiating steps to seize your assets or retrieve the outstanding amount, the bank, NBFC, or financial organisation must give you enough time to repay the debt. According to the Securitisation and Reconstruction of Monetary Assets and Enforcement of Security Interests (Sarfaesi) Act, the bank might start the process in the following way:
If a loan is classified as a non-performing asset (NPA) and the repayment is 90 days late, the bank or financial institution must provide the borrower with a 60-day notice to pay the debt.
If you do not repay the loan within the required notice period, the bank may sell your assets or property. Even then, the lender has to give another 30 days’ public notice of the upcoming sale before they can affect the final sale.
-
Right to Fair Value
If you do not pay your debts within the notice period, the bank will repossess your property but will not be able to determine the asking price on its own. Along with the one-month repossession, the bank officials will send you a notice stating the fair value of the asset, as well as the reserve price, date, and time of the auction.
You have the right to object and declare the price which you believe to be correct if you believe the selling price is too low. The bank considers your right to receive fair value for your property and then re-values it. If you believe the asset is undervalued, you have the right to seek out a replacement buyer and introduce them to the lender.
-
Right to Be Heard
You are entitled to object to the bank's notice of repossession in the period of notice. You are notified by the authorised officer, within 7 days, of the acceptance or denial of your objections, and of valid reasons.
-
Right to Claim the Balance
There may be an opportunity to get a high sale price for your bank-repossessed property. You have the right to the balance amount if the bank has some balance left over after recovering the outstanding balance. Even if your asset is repossessed, keep an eye on the auction method. Lenders will undoubtedly refund any excess amount realised after recovering their debts. Ensure that you receive this money because it is legally yours.
Additional Read - Personal Loan For Defaulters
Final Thoughts - Loan Default is not a criminal offence
Borrowers should remember that a loan default is only a civil offence and the lender does not have the right to treat you like a criminal. They can in no way mistreat you or harass you. Lenders frequently enlist the assistance of recovery agents to coerce borrowers to repay their loans. However, the agents are not permitted to deviate from the path that banks have established as part of their code of customer commitment.
These third parties can contact defaulters at a location specified by the latter, such as their home or workplace. Furthermore, they are only permitted to make such visits during specific times of the day. During their visits, they are not permitted to violate decency and civility norms. If the agents intend to intimidate or humiliate the borrowers or their relatives, the latter can file a complaint with the lenders and, eventually, the banking ombudsman offices.
FAQs:
- Is the bank obligated to give the excess amount that they fetch by selling my assets in order to recover the debt dues?
Yes, the bank can only take the amount that you owe them. The remaining amount needs to be given to you.
- Whom should I contact in case the lenders harass me or mistreat me for loan default?
You can contact the banking ombudsman to report the issue.
- How many days of non-payment result in a loan default?
90 days of non-payment of dues shall result in loan default.
- Is there a possibility to prevent the lender from selling off my assets to recover the dues?
The bank has to give you sufficient notice before they auction off and sell your assets. You can negotiate with the lender for a debt settlement during this time. You could make a partial payment and buy time from the lender to pay the dues.
- What other options do I have to prevent a loan default and the resulting legal actions?
You should talk to your lender about it. You can ask for a loan tenure extension to reduce your monthly EMI amount. You could opt for loan restructuring that will give you some breathing space to repay the loan. There is debt settlement that allows you to pay a single payment to close the loan, but at a lower interest rate. You could even ask for a moratorium period while you get your finances straight. The best option is to talk to your lender to resolve this amicably.