Movable Asset (Car/Auto) loan default .

The borrower will be given a notice of 7-15 days to pay the dues before the repossession of the vehicle takes place. In case of non-payment within this notice period, the bank will repossess the pledged vehicle.

After repossession of the vehicle, a pre-sale notice will be issued to the borrower giving him seven days to pay the outstanding dues. The pre-sale notice will clearly mention the details of the concerned office and the corresponding contact person for payment and release of the vehicle.

In case the borrower makes the payment in accordance with the agreed terms of a settlement, the vehicle will be released back to the borrower within seven days from the realisation of the payment.

If the borrower does not manage to make the payment, it will be sold through an auction through dealers impanelled with the bank within 90 days from the date of repossession

Immovable Asset (House/Property/Land)

• A notice will be sent to the borrower u/s 13(2) of the SARFAESI Act. This can be done only after the loan is classified as an NPA as per the guidelines set by the RBI.
• The customer will be allowed 60 days, post issuance of the notice, to regularise the account or come forward to settle the account.
• If the borrower refuses to pay, then the authorised officer will ask for the physical possession of the mortgaged property by handing over the demand possession notice to the borrower.
• The bank shall proceed with the auction of the attached property after 30 days of taking possession of the property. This is in the event, that the customer does not come forward and settle the loan. The bank shall send the customer a letter intimating him about the venue of the sale, indicating date and time of the same.
• The bank will consider handing over the possession of the property to the borrower any time after repossession and before concluding the sale transaction of the property, provided the bank dues are cleared in full.

Any excess amount obtained, after adjusting the dues on the loan, will be refunded to the borrower.

The Rights of the Borrower

The SARFAESI act gives the customer the right to appeal against the action of repossession taken by the bank in the Debt Recovery Tribunal u/s 17 within 45 days from the date when the action was taken. If the DRT passes an order against the borrower, then an appeal can be filed before the Appellate Tribunal within 30 days of receiving it. If it is held in the appeal that the possession of the asset taken by the secured creditor was wrongful, the Tribunal or the Appellate Tribunal may direct its return to the borrower, along with appropriate compensation and cost.

You can exercise the following rights if you default on a loan:

Right to Notice

When you fail to pay the loan dues, the bank can’t take any immediate action against you. If you haven’t paid EMIs for 90 days, the bank must serve you a notice of 60 days. Once the notice period is over and if the dues are still unsettled, then the bank is allowed to repossess your property. And before the bank can sell off your property, it has to serve yet another notice of one month informing you about the same.

Right to be Heard

Within the one month notice period, before the property is auctioned, a loan defaulter can file a representation to the authorities and raise objections towards selling off the property. The loan officer has to then respond to the representation and give valid reasons for turning down your objections within seven days.

Right to Fair Value

If the bank has repossessed your property due to a loan default, it does not give them the sole right to decide the sale price of the property. Along with the one month notice informing the customer about the auction of the property, the bank has to send a fair value notice that clearly states the sale price of the property as assessed by the bank officials. However, if you feel that the bank is selling it off at an under-priced rate, then you can raise objections and declare a price that you feel is reasonable. The bank has to consider your plea to receive fair value for your property and will have to revaluate the property once again.

Right to Balance

Since the rates of property are steeply rising with each passing day, there is a possibility that there might be a fair amount of balance left after the bank has settled the loan by selling off your property. You are entitled to get that balance amount as the bank has no claim on it once the loan is settled.

Right to be Treated Politely

Banks are registered organisations and can’t act like independent money lenders when it comes to a loan default. In the past there have been reports of harassment and mistreatment of loan defaulters by collection agents but now banks have decided to follow a code of conduct that is polite and respectful. A collection officer has to politely request to meet you and the place and time of the meeting can be as per your convenience. If you don’t respond to the request, the collection officer may meet you at your home or work place. Also, the agent can meet you only between 7 AM and 7 PM and can’t harass you late at night or in the wee hours of morning. The collection agents are supposed to treat the defaulters in a respectful manner without resorting to abusive language and mistreatment.

The Consequences

Loan default can have serious consequences. Not only could it result in the seizure and auction of your assets, but your Credit Score too, will go for a toss. Even rescheduling debt tarnishes your credit history to an extent and will reflect in your credit report. Obtaining a loan in the future will become an issue which is a huge financial setback. Make sure you take a loan only if you’re sure you will be able to make timely repayments. A good way to do this is to ascertain your personal net worth in terms of assets you own and the money you have at your disposal after taking stock of your existing debts and other financial commitments.

Also, if you ever default a loan payment, do not panic and remember to exercise the above mentioned rights.