In default of repayment of a mortgage or car loan? Know these 5 rights as a borrower
- Banks, non-bank Financial Institutions (FIs) initiate the recovery procedure for their debts in the event of payment default
- In the event of default on a mortgage loan, the bank would issue a 60-day notice to the defaulter.
- The lender can forfeit any collateral in the event of default by the borrower
New Delhi: The Covid-19 has changed people’s lives. With job losses and wage cuts, many people are facing a serious financial crisis that has prevented them from repaying their loans. Failure to pay EMI loans can adversely affect your credit score and may prevent you from getting another loan in the future.
If you are currently facing a situation where you cannot repay your loan, you need to understand your rights as a borrower to make sure that you are not being exploited and harassed by lenders. You should know that if they default in the service of their home loan or their car loan, they do not lose all their rights to their house or their car. Lenders must follow a set of procedures in order to collect their dues.
Here are 5 rights borrowers should be aware of in the event of a default:
1. The lender must follow the due process: The borrower should always remember that if he does not repay, he is not giving up all of his rights to the asset or a fair deal. All lenders must follow some due process while initiating proceedings to collect their dues. In case of secured loans, mortgaged assets can be taken over by lenders under the Law on Securitization and Reconstruction of Financial Assets and Enforcement of Collateral (Sarfaesi). However, they still need to give the borrower sufficient notice.
2. Right to sufficient notice: Note that a loan account is classified as a non-performing asset (NPA) if the borrower does not pay EMI for three consecutive months (90 days). In such cases, the lender must first issue a 60-day notice to the borrower. If the borrower does not repay within the given notice period, the lender can go and sell the asset. Before disposing of the property, the lender must serve another 30-day public notice stating the details of the sale.
3. Right to a fair valuation of assets: Borrowers should be aware that before selling the assets, the lender must issue a notice specifying the fair value of the asset. The notice must also specify the reserve price, date and time of the auction. All of this is calculated by the bank’s appraisers. If you feel that your asset has been undervalued by the lender, you can dispute the current auction. You even have the right to find a new buyer and present it to the lender.
4. Proceeds from the right to the balance: Borrowers who do not repay the loan should also remember that even if their asset is repossessed, they should monitor the auction process. In case the lender has an excess amount realized after collecting his contributions, he is required to repay the remaining amount to the borrower. Make sure you get this money as it rightfully belongs to you.
5. Right to humane treatment: It should be mentioned that lenders hire debt collectors in order to coerce borrowers to repay their loans. However, borrowers should be aware that there is a certain line that these agents cannot. This limit is what the banks have agreed to as part of their code of commitment to customers. These agents can contact the defaulting debtors either at a location specified by the borrower, residence or place of work.
Agents can visit the borrower between 7 a.m. and 7 p.m. Moreover, they cannot violate the standards of decency and civil behavior during these visits. Borrowers should be aware that if an agent attempts to intimidate or humiliate them or their family members, they can raise the issue with the lender and ultimately the banking ombudsman’s offices.