Financial Distress
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Buying a home is a dream of all especially first time buyers. With the change in the financial landscape these days any individual can easily become a property owner with the help of home loan provided by almost all the banks and financial institutions. Also, the borrowed money can be easily repaid in easy monthly installments (EMI). But sometimes due to financial crisis or unwanted circumstances, a borrower fails to pay the EMI on time due to which they become a defaulter of the bank from which they have taken the loan. This condition leads to financial distress or also known as debt distress.

So what happens if a home loan borrower fails to pay their EMI on time? Read this blog to know about the consequences and recuse options during such situations:

What if a borrower fails to pay EMI?

When a loan borrower fails to pay EMIs for 90 consecutive days, banks put such loans under the category of Nonperforming asset (NPA). Under such circumstances, banks issue a 60-day legal notice to the home loan borrower to pay dues.

However, if a borrower still fails to pay outstanding amount during this period, banks will again issue a 30-day public notice informing the borrower about the auction of the property and its valuation as assessed by the lender.

In a way, banks give around five months’ time to a loan borrower after first EMI default before taking on the possession of the property.

What action did banks take further?

According to financial experts, banks or financial institutions consider all the possible alternatives before auctioning a property.  For example, in case a borrower fails to pay EMI due to job loss, or some other medical or health emergency, then it’s important to provide all the relevant proofs to the banks. If officials get convince, they may restructure the complete loan EMI and other conditions so as to lessen the borrower’s burden.

However, auctioning a property is the last option for them. They sell the property only in extreme cases. In order to recover a home loan, banks may sell or seize the mortgaged property of the borrower. This authority is already given to the banks by the borrowers under the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act) so that they can protect their interest rates.

How to overcome financial distress?

There are circumstances when a borrower fails to avoid financial crunch and they find themselves totally helpless. However, various options are available to home loan borrowers which are suggested by banks and financial institutions. Some of them are:

  • Discussing the problem with the lenders and try to resolve it
  • Provide valid reason and proofs to banks as in why you are not able to pay EMIs. It could be an accident, financial crisis or loss of job.
  • Ask your bank to refinance the complete home loan amount
  • Liquidate existing savings and investments to repay outstanding EMIs
  • Borrowers themselves can sell their property and pay back the amount instead of bank taking over it and auctioning it
  • Before selling the property, the borrower must take banks in confidence and perform an action only after their consent.