Action Taken on Failure of Home Loan EMI Payment?

In today’s time buying a house is the most expensive purchase to make where the rates of property are sky rising. It’s hard to imagine buying a house on full down payment Home loan has become inevitable in today’s scenario as the buyer most of the time may not have the sufficient funds. While buying the house a person tries stretching himself to the maximum extent financially and exhausts all his savings. He also avails the maximum possible home loan so as to buy the best possible house with his available resources. But there are times where he may not be able to pay the EMI due to several reasons like losing the job, any sudden medical emergency etc. Now the question arises, what if someone cannot repay the house loan. Will the bank seize the property if the borrower has missed 2-3 installments? The answer is no, bank do not seize the property immediately but if the buyer fails to default for six months the bank will take over the house.

So let’s understand further  the consequences on failing to pay the home loan EMI and the options open for the buyer in such a situation.
 
What can a bank do and does?
In order to protect the interest of the lenders, a legislation called SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act) was passed by the parliament in 2002. This law gives the lending institution rights to seize and sell the property to recover the outstanding loan amount due to it. Banks do not take such extreme steps quickly because As they are not in the business of buying and selling properties, so as a lender they are only interested in timely servicing of their loan they may try finding out better alternatives before taking such harsh steps. It the amount realised from a sale of the property is more than the outstanding amount of the loan, than bank hand over the excess amount to the buyer. However in case if there is a shortfall than the buyer is bound to pay the short fall to the bank. Additionally, buyer is liable to pay long term capital gain tax also, depending on the period for which the property was held by the buyer and the cost of the property.
 
Backup Plan to defence the situation
Financial planners suggest that before you take a home loan borrower should make a contingency fund amounting to at least six months’ expenses these funds come handy during such times. One must also buy an insurance against unemployment. Such a policy our country is sold as a rider and not as a standalone policy and this could pay 3-6 months’ EMI in case the buyer loses his job. In such a situation, a borrower can also break his fixed deposit or take a loan against a security.
 
Implications on failure to pay the EMI
As per the RBI guidelines if the buyer fails to pay the EMIs of the home loan and is overdue for more than 90 days, the entire home loan will get converted as a non-performing asset and the bank may ask the buyer to repay the entire amount of the outstanding loan. It is only continuous failure to pay your EMI, which constitutes a default. Mere isolated cases of default in the payment of your home loan installment are not taken so seriously and do not make the buyer a defaulter liable for severe consequences.
 
Impact created on the credit score
As per the rules laid down by Credit Information Companies (Regulation) Act, 2005 all the financial institutions has to report the transactions of credit including default to the Credit Information Bureau like CIBIL default by the borrower on payment of the home loan also gets reported. This adversely impacts borrower’s credit history and credit score. This will adversely impact the ability to avail any credit facility from the financial system, whether in the form of credit card or home loan in the present as well as in future.
 
Hence, the banks have been authorised to take possession of the house legally so it is always advisable for the borrower to be patient with the lender when such situation occurs. On the contrary, a buyer should be cordial with the lender and help him out to make the things easy. buyers cordial approach will make the representative have a sympathetic view of the situation and will come to your rescue the bank is also interested in finding a viable solution to avoid litigation or hassle of having to go through the process of seizing and selling the property.