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Rights of a Loan Defaulter in India

When it comes to purchasing the home of one’s dreams, a Best Best Home Loan often comes as a saving grace, since it provides the home buyer with the much needed financial aid. While there are numerous perks of this credit, including tax benefits, enhanced financial stability in the long run, and the eventual ownership of a residential property, there is one drawback that Home Loan entails – a long-term financial commitment.

More often than not a Home Loan requires the borrower to pay anywhere between 10-40% of their monthly income towards the EMIs. Moreover, these EMIs need to be paid for as long as 120 to 360 months.

At the time of borrowing ICICI Home Loan or a Home Loan from any other bank, the borrower may be confident about their ability to service the loan for the extended time period, however, in some cases, certain unforeseen circumstances may leave the borrower hanging high and dry. In such cases, it may become a little difficult for the borrower to keep up with the strenuous repayment schedule, and may lead to defaults in payments.

If you are facing such a situation, or are anticipating it in the near future, you must first know what is meant by a Home Loan Default. When you fail to pay your EMIs as dictated by your home loan agreement, you are considered as a Home Loan Defaulter, and this phenomenon is known as Home loan Default.

Rights of a Home Loan Defaulter

In the circumstance of a Home Loan default, the lender has the right to recover the loan amount. Considering the fact that a Home Loan is a Secured Loan, the lender also reserves the right to seize and even sell off your home if you miss your EMI payments for an extended period of time. That being said, the lender is liable to maintain decency when trying to recover the amount, as well as when they seize the property. As a matter of fact, the Reserve Bank of India, along with the Indian Banking Association has drafted a set of guidelines to safeguard the borrower from any inappropriate behavior from the lender’s end.

Rights of a Defaulter against the Bank

Below mentioned are the rights you can exercise against your lender in case of a default –

  • If you haven’t been able to pay your EMI for over 90 days, you reserve the right to be served with a notice, wherein your lender must provide you another 60 days to make the payment. If you are still unable to pay the accumulated amount, only then can the lender take any legal action.
  • Within the first 150 days of being unable to make your EMI payment (including the 60 days of the notice period), you reserve the right to reach out to the lender, stating your problem. If you believe you will be able to make the payments at a future point in time, you can also file an application regarding the same. In this case, it is the obligation of the lender to revert back to your grievance within a span of 7 days.
  • If you find yourself in a situation where due to the extended default, the bank is seizing your property, you must understand that you have the complete say in arriving at the right value of the property. In fact, you reserve the right to raise an objection, if the value of the property decided by the lender is lower than you see fit.
  • You reserve the right to introduce the lender to a prospective buyer for the property if you believe the buyer is offering an apt price for the same. 
  • In case the lender decides to sell off your property through an auction and recovers an amount over and above what you owe to the lender, you reserve the right to receive the balance amount.

Rights of a Defaulter against the Collection Agents

In case you are unable to pay your EMIs for a period exceeding 150 days, even after receiving the notice, your lender may send the collection agents for recovering the amount. Contrary to popular belief, the collection agents are required to behave in a decent manner and are not entitled to use any unscrupulous collection tactics. Below listed are the rights that you can exercise when dealing with collection agents.

  • When a collection agent visits you, you are entitled to identify them as a safety precaution. To this end, you should ask them for the ID issued by the Indian Institute of Banking and Finance, as well as an authorized letter from your lender. If the agent is not carrying any of these two documents, you need not entertain them.
  • A collection agent can only get in touch with you from 7 am to 7 pm on any working day. Besides, the agent is only authorized to speak with the loan defaulter and not with any other member of the family, unless the defaulter is beyond reach.
  • The collection agent must maintain a respectful behavior towards you at all times. They are not entitled to use derisive language, physical force or any way of threatening you in order to recover the amount. You reserve the right to courteous treatment as the customer of the bank.

We understand that your time as a loan defaulter may be extremely stressful, but you must recognize this time as a bump in your financial journey rather than considering it as the end of the road. Now that you are aware of your rights, we believe you will be able to deal with this situation rather efficiently and come out of the same at the earliest possible!


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