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Defaulted on home loan EMIs: Know your rights in case debt collectors knock at your door

If the default continues for six months, banks give the borrower a two-month grace period to regularise the repayment.

November 09, 2018 / 09:43 AM IST

In 2016, Jayesh Mathur residing in Delhi purchased a home by taking a loan from PSU bank. At that time he had over-stretched his financial capability while buying this property. Nowadays, with ease of getting loans from banks, housing finance companies and NBFCs there are several millennial like Mathur who opt to purchase a home at start of their professional life. They enjoy to the fullest while paying partly through EMIs. However, with other prior financial commitments towards his family and rising children education expenses he started defaulting on home loan EMIs from following year. This led to face-off with debt collectors (recovery agents) from bank at his door step very often.

Impact of defaulting on home loan EMIs

Amit Wadhwani, Co-founder, Sai Estate Consultants said, “If the default continues for six months, banks give the borrower a two month grace period to regularise the repayment. Failure to do so will result in banks declaring the loan a non-performing asset (NPA).” Bank can auction the property/collateral to recover its debt and reduce their NPAs.

Banks are primarily interested in getting their money back than in taking legal recourse. A legal recourse involves auctioning a house which is time consuming. Hence, banks follow up the matter with the borrower through debt collectors for at least six months before taking any legal action on property.

Rights of borrowers while face-off with debt collectors on default of home loan EMIs

i. Right to check the identity
With increasing number of frauds roaming around in the city, borrowers are provided with the right to ask and check the ID cards of recovery agents as issued by banks and NBFCs before starting with the conversation about pending dues.

ii. Right to privacy
As per this right, agents can’t share or discuss the issue of your impending debts with other people. Rachit Chawla, Founder and CEO, Finway said, “If you found them doing so, you can file a complaint against him with banks and NBFCs and can even take a legal action.”

iii. Right to humane treatment
Chawla explained, “According to this, recovery agents need to be decent and civilized in their approach. Respecting your personal space, the recovery agents are clearly directed to contact the borrowers between 7 am and 7 pm.” On violation, borrowers are free to take legal action supported with all the valid proofs.

Things that should be legally pursued by the borrower on default of home loan EMIs

i. Approach your lending bank on default of loan
Inform your bank about the current financial situation, this will act as a proof for the recovery agent to know the borrower well.

ii. Apply for restructuring of home loanThe borrower has an option to restructure his loan when there is a financial crunch. Wadhwani said, “In many cases the banks offer the borrower a flexible and easy option to repay the home loan while restructuring.” After checking the restructured proposal from bank and understanding details the borrower can then decide to accept it and continue to repay outstanding loan instead of defaulting.

iii. One time settlement
The borrower can be in a dreadful situation when he cannot pay any amount to the bank or NBFC. Wadhwani suggested, “You can settle the loan via a small payment where up to 90% of the principal and 100% interest amount is waived off.” However, in this case if the borrower has accepted to do so, the credit report will reflect the fact that you could not repay the loan amount completely and it was settled with one time payment. This will henceforth, affect your credit score while borrowing.

Hiral Thanawala
first published: Nov 9, 2018 08:40 am