What happens with your home loan when project gets delayed

Sukanya KumarRetaillending.comCase 1: Nitin Gupta, a 50 year-old executive director in a prominent financial services firm in Bangalore liked the idea of buying a villa in an under-construction project from a developer who is an expert in such type of construction. He wanted to retire after 5 years and stay in a spacious villa with a private garden and a swimming pool!He met the builder's sales executive in their site office one Saturday afternoon in July 2007 and booked a 4800 square feet plot and a potential built up area of 4200 square feet, for which he will have to sit with their architect for the plans. The villa will be ready in 24 months post finalisation of the plans.He paid a token sum of Rs 11 lakh for the Rs 2.12 crore worth bungalow, but the payment schedule had taken him by a little surprise. The payment for the land had to be made immediately, which was 1.60 crores. The villa project hadn't received all statutory approvals and hence the bank loan was not possible. He didn't have that large cash reserve. He discussed this issue openly with the builder's rep before booking and she promised to get back.Gupta received a call from a private bank within 7 days who claimed to have taken some 'special approval' and are willing to give him a loan on this project. He immediately called the builder to double-check the matter and found it relaxing to know that it is a fact.He paid Rs 10 lakh more to make it a 10% contribution of the total cost and the bank disbursed Rs 1.39 crore on basis of an allotment letter issued by the builder. Nitin was told that sale agreement cannot be signed unless the plan approval number and other documents come in. As long as the bank was okay with the arrangement, he had no reasons to worry.Nitin was happy to be able to pay the sum so easily and was paying a Pre-EMI of approximately Rs 1.50 lakh every month to the bank. Up until 8 months passed by and Nitin suddenly remembered that there was no call from the builder to get the sale agreement made or to sit with the architect for the design planning, he wasn't worried. He called the sales lady who responded to him saying that the approvals are yet to come-in from the government authority and hence taking some more time.Over a cup of coffee at a friend's place next weekend, Nitin mentioned this delay when someone in the group asked him how well was his villa progressing, and then realised that there was neither an agreement nor a registration on the land for which he has completely paid for!He called the builder's office and got a prompt reply that they have a 'policy' of not registering the land unless possession of the villa is handed over! But when will the construction start? -"Sir, we are awaiting some approvals."One year had gone by. Nitin had paid 1.50*12= Rs 18 lakh of interest to the bank by now. He called the bank officer for his opinion. The guy handed over the phone to his senior who explained that they cannot do anything if the builder isn't getting the required approvals. That meant Nitin will have to pay Rs 1.50 lakh per month even till his retirement if the approvals do not come? -"No, Sir", smiled the bank officer, "You can prepay the amount with a 2% penalty too and close the loan." Case 2: Meera Sawant worked all her life for a developer and suddenly realised that in the business of helping people owning a home, she had forgotten to buy one for herself! Meera, a VP-operations with a reputed builder in Mumbai started looking at weekly newspaper advertisements more diligently and finally chose one in Thane which had all amenities and her children of 11 & 8 will surely love it. The builder is offering an interest subvention scheme and she will have to pay no interest on her loan for the next 18 months. The property is 50% complete and possession is promised within 15 months.Taking this as a golden opportunity, Meera booked the flat on one Sunday morning. She paid 25% of the flat cost, an amount of Rs 46 lakh to the builder and the loan was done immediately by the lender already tied up with the builder for the scheme on mortgaging the allotment letter. The builder offered this one more savings for her that she can register the property after an year or so and save the immediate payment of 5% stamp duty and 30,000/- of registration charges. Wow! She can now peacefully forget about it now till the next 12 months! Happy, she was on her decision.One year had passed by. The builder did not come back asking her to register, but where was Meera in a hurry? During this time, Meera wanted a small vehicle loan for a new sedan she was buying and her application was declined due to poor credit report. She was shocked! She downloaded the report herself to find that the home interest payment is overdue by 3 months and it was going on for the last 8 months! She called the bank to understand why such interest payment is overdue. She was informed that she needs to speak with the builder since the bank is at the receiver's end. They also added that, to maintain good credibility, she herself needs to pay up the amount promptly if the builder falters and it was because of the bank's 'good relations' with the builder that they did not bother her till now.The builder's office executive was a new recruit and he divulged that the commencement certificate (CC) for the 27th floor is yet to come and hence there's a high possibility that the building would end at 25 floors. If she wants a refund, the builder is willing to add an 8% interest to her portion of Rs 46 lakh and return the money to her. The executive was repetitively trying to draw attention to the matter that the builder was paying her part of the bank interest, hence it is more loss-making for the builder than to her. She can alternately choose a new flat in the new tower where the foundation is yet to start, but the rate will be that of current, which is higher, and there is no subvention scheme available. The 'offer' is open for her to decide for three days only, and hung up the phone.Nitin and Meera are the victims of various schemes that are run today which they did not do much research on. They should have asked the following questions:Nitin should have enquired- What is the 'special approval' that you have taken in the bank? How can you fund on a property which has not received any approvals and all other lenders are refusing to do loan on it? He would have found that the builder has merely given an indemnity on a Rs 200 stamp paper to the bank that they will get all statutory requirements cleared within 3 months, but there was no clause of what will happen if that doesn't happen. Nitin is now liable to continue to pay the interest to the bank and the only alternate is to close the loan and keep his own Rs 1.60 crore locked with the builder till eternity.Meera should have asked Whether the CC is available with the particular floor, especially when she was buying such a high floor when the building was only half-way. She got carried away with the opportunity of not registering the flat immediately and taken that as a big saving. Banks get approvals for many such deviations, but ultimately, the responsibility lies with the borrower to pay up. Meera lost the time and her credit report now got negative remarks since she was not careful.Both Nitin and Meera were established and well-connected people in the similar industry and had they been appraised of such issues in advance, they would have not risked all their faith on a gas-filled balloon called "scheme".If you have a home loan advisory service available to you, which is unbiased and can guide you, you must try that option. The most expensive purchase in your life for which you check out multiple homes for months before you buy, you do not check out your lending options or realise what kind of financing you are opting for and basis which documents from the builder the loan is being done, isn't a good judgment at all.