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Defaulted on home loan EMI? Here's help
BS Reporter in Mumbai
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March 11, 2008

In the last two years, serious hikes in the home loan interest rates would have caused a lot of grief to the customers. Banks have followed two strategies to control this: by increasing the equated monthly instalments or hiking the tenures.

As a result, many existing customers would have seen their EMIs go up quite sharply, thereby putting pressure on their overall expenses.

Therefore, while you are a proud owner of a house, maintaining that monthly balance so that your EMI does not bounce becomes high priority now.

Sometimes, you might find it difficult to pay regular EMIs on time. This could be because of several reasons such as loss of job or excess pressure on your salary (because of the EMI hike) leading to bouncing of the cheque.

It's important that you handle these situations with care because cheque bouncing has several consequences. First, the bank will charge you a fee for the bounced cheque. Also, the lender is likely to charge some penalty. Most important, a few bounces and you will be reported as a defaulter to the CIBIL.

That  basically means that for the next seven years, whenever you approach a bank or a financial institution for another loan, your repayment record will come up for scrutiny. And your loan application can be rejected, if there is a case of excessive cheque bouncing.

Of course, you will find it difficult to make your lender understand why you are not punctual in your EMI payments. But losing your cool is the last thing that will help. It is all-important to convince the bank on the reason (s) for the defaults.

Concrete facts, rather than vague statements will give the bank a clearer picture. This means avoiding statements such as "I can't pay the EMI due to some unforeseen circumstances."

Documents supporting the unfortunate event (s) that are leading to the EMI defaults will convince the bank a lot better than just verbal accounts. Show a copy of your job termination letter or bank statements showing losses incurred in business.

Next, provide an estimate of the time period you may face the crisis. If the bank is assured that the loan can be recovered, it will definitely try to put forth a plan where both your interests are protected.

All this is accomplished without having to take extreme measures on the bank's part, such as sending recovery agents over or a distress sale of your home. If it is a short-term crisis, the bank might agree to work out a deferred repayment plan in lieu of a fee or collateral security.

If it turns out to be a long-term financial crisis and the savings are dipping drastically, the solution is to sell the house. You will need your lender's consent to sell. The bank will give a document stating its approval for the sale as well as facts relating to the loan.

Based on the letter, you can negotiate with potential buyers. You can sell the property after pre-paying the loan and the loan foreclosure charges. This is a much better option than the bank-imposed distress sale.

It is important to know that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act empower the bank to take possession of the property that is mortgaged to them, to recover the loan outstanding from the borrower.

Yes, the whole situation is rather distressing.  And it does get worse when it's you dream home on the line. But a little extra effort on your part may save you from this trouble: an insurance product to guard yourself against the risk of becoming a loan defaulter and losing your home. However, if you have not done so, it is best that you approach the
bank and come with a proper solution.


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