Here is an overview of 4 important rights that defaulting borrowers have.
Right to sufficient notice
Failure to repay the loan is not a criminal offense. “Defaulting on payment is generally a tort, except in cases where there is fraudulent or dishonest intent on the part of the borrower at the time of obtaining the loan,” explains Mani Gupta, partner at Sarthak Advocates & Solicitors.
A right to adequate notice ensures that you are informed of a possible future lender action well in advance so that you have time to act. “As a rule, banks and financial institutions give 60 days’ notice under the SARFAESI law before proceeding with a securitization action in respect of the guaranteed asset,” adds Gupta.
However, it should also be noted that lenders do not act in this direction from the very first monthly default. “The borrower’s account is classified as a non-performing asset (NPA) if the repayment is 90 days overdue,” says Sonam Chandwani, managing partner at KS Legal & Associates. The lender will only start proceeding once your loan account turns into an NPA, which only means after you have not paid 3 consecutive IMEs.
“In case of non-repayment by the borrower within the notice period (ie 60 days), the bank can proceed with the sale of assets but to sell, the bank must serve another public notice of 30 days mentioning the details of the sale, ”adds Chandwani.
If you can make a payment during this time, you will have some breathing space to plan your future course of action. You can opt for a one-time settlement with the lender, or you can have your loan restructured according to your financial capacity.
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Right to fair valuation of assets
The value of the property is often much more than the total of the lender’s contributions. However, the lender may only be interested in realizing so much value in order for the contributions to be clawed back, which may not be in the borrower’s best interest. To ensure the borrower’s right to fair valuation, RBI has established guidelines for the valuation of collateral. In accordance with SARFAESI law, before selling the repossessed asset, the lender must obtain the appraisal of a certified appraiser.
“In accordance with these guidelines, most banks have prescribed detailed criteria for the hiring of appraisers and, in general, only these appraisers are used. This ensures that the asset taken over is not sold at any price – determined unilaterally by the bank, ”explains Gupta.
Lenders are required to give notice and full details to the borrower. “Prior to the sale of assets, lenders are required to issue a notice specifying the fair value of the asset, including details such as the reserve price, date and time of auction,” explains Chandwani.
The borrower should carefully review the appraisal notice to verify if the appraisal reflects the true market value of the asset. “In the event that the borrower determines that the bank’s valuation is incorrect or undervalued, the borrower can then challenge the current auction and seek out a new buyer and present it to the lender,” suggests Chandwani.
Despite all of these efforts, if a borrower finds that the lender is not doing a fair job, they can escalate the deal. “If a borrower feels that the price has not been set correctly, he can go to the debt collection court to keep it on the auction and also go to the bank with any offer to buy. that the borrower might have, “Gupta advises.
Proceeds from the right to the balance
When the collateral for a loan is auctioned by the lender to collect the contributions, and if the proceeds of the sale are greater than the total of the contributions, a borrower is entitled to receive the balance amount.
“Even if a borrower’s asset is repossessed, it is imperative to monitor the auction process. The reason for this is that lenders tend to repay any excess amount realized after they have recouped their auction dues. Therefore, the borrower must ensure that the money is repaid to the borrower as soon as possible, ”advises Chandwani.
If the lender does not repay the balance proceeds on time, you will need to register your complaint. “The borrower can go to the debt collection court for help in collecting the balance. A borrower can also turn to the banking mediator to complain about the bank’s unfair practices in this regard, ”suggests Gupta.
Right to humane treatment
Lenders are required to follow due process prescribed by law. “However, lenders frequently hire debt collectors to coerce borrowers into repaying their loans; their conduct should never violate standards of decency, civil behavior and, ultimately, the code of commitment to customers signed by banks, ”says Chandwani.
To safeguard the interests of borrowers, the RBI introduced a
Code of good practice. The right to humane treatment requires that borrowers be treated with dignity. “Lenders should not resort to unwarranted harassment, such as constantly disturbing borrowers at irregular hours or using muscle strength for loan collections. The guidelines also require that lenders refrain from interfering in the affairs of borrowers, except as provided in the terms and conditions of the loan sanction documents, ”Gupta explains.
“If there are violations, borrowers or their family members can raise the issue with lenders and the banking ombudsman’s offices,” suggests Chandwani.