Should Jaypee homebuyers stop paying EMIs?

Over 40,000 home buyers are stuck in incomplete projects floated by Jaypee Infra against which the National Company Law Tribunal has recently started insolvency proceedings. While some have paid the full amount to the company, there are others who may have paid either 60 percent or perhaps 90 percent of the amount.

Homebuyers who have invested their life savings in a company that has been declared insolvent are in a quandary whether they should continue to pay their equated monthly instalments to banks or stop doing so?

Some legal and tax experts are of the opinion that homebuyers should stop paying their EMIs as the obligation to deliver the apartment to the buyer has not been met by the developer.

“Homebuyers should stop paying their EMIs. There was a tripartite agreement between the bank, developer and the customer. The deliverer was expected to deliver the project for which the bank was to pay the money and the buyer pay their EMIs” says Vivek Kohli, senior partner and co-founder Zeus Law.

“In this case of Jaypee Wishtown, since the developer has not been able to deliver several towers in the project, where is the question of paying EMIs? Also, whatever money has been paid by the bank, it is still secure as it has an asset, a mortgage on an asset that is yet to be developed on the land. Unfortunately, the customer has nothing, no property title transfer papers, just an allotment letter. Among the three, the customer is perhaps the worst placed and to expect that the worst hit person will continue to discharge his obligation while the developer, the propounder of the tripartite agreement has not met his obligation, is not fair.”

Some experts say that stopping EMIs is not the right solution. The biggest concern, if buyers stop servicing their home loans, it will impact their credit rating and hamper their future ability to raise any kind of loan.

“Banks should restructure loans of Jaypee Infratech Ltd otherwise to resolve one big NPA they will get 20,000 small NPAs as all home buyers will stop paying EMIs after bankruptcy and government will be facing a big political and social problem. Buyers should send notices to their banks that they will stop paying EMIs if JIL is declared bankrupt. Stopping EMIs is not a solution right now, as we are not sure about not getting our units and there is still hope of a turnaround,”  says Arvind Jain, president of Developers Township Property Owners Welfare Society.

Also Read: NCLT declares Jaypee Infratech insolvent: Here’s what homebuyers should do

Some loan experts suggest that homebuyers can try and negotiate with their bank and reduce their monthly EMI outgo and increase the tenure of their loan to the maximum, 30 years if possible.

This may help reduce their exposure and give them enough time to wait and see the dust settle and a solution emerge over the issue. Perhaps in some months, a third party may take over the project and complete it.

This week, the NCLT appointed insolvency professional Anuj Jain as CEO of Jaypee Infratech. As of now the board of directors of the company have been suspended. Jain will now sit with Jaypee’s creditors to see if a resolution of the company’s debt is possible.

He will be given six months to revive the company. This period can be extendable by another three months. In the meantime, homebuyers have been given two weeks (until August 24) to raise claims related to their investment in the Jaypee projects.