What Happens When you Default on Home Loan?

There are many consequences that you will face if you default on a home loan. When I asked a bank official about what happens if you default on home loan, I learned that the lender sends several notices to the borrower and ultimately takes legal action. There are other consequences as well so let me highlight them next. 

What Happens When You Default on Home Loan?

If you fail to pay the housing loan on time, then the following things can happen:

• Late Fees: Additional charges are applied for missed payments.

• Credit Score Damage: Non-payment negatively affects your credit score, impacting future loan eligibility.

• Foreclosure: The lender may initiate foreclosure to sell the property and recover the loan amount.

• Legal Action: The lender can take legal steps to reclaim the owed amount.

• Loss of Home: You risk losing your home and any equity built up.

• Increased Debt: Interest and fees accumulate, increasing the total debt.

So these are what happens if housing loan is not paid. I therefore suggest you pay EMIs on time and make sure to get rid of your debt on time.

Enjoy Quick Disbursal of Your Home Loan through NoBroker

Read More:

What does it mean to default on a loan ?

Home loans are long-term loans where you pay EMIs at least for 15-20 years.

So what happens if you default on home loan? What is the

legal action against home loan defaulters in India?

Your credit score will decrease on not paying the home loan. It will reduce your creditworthiness and impact your future borrowing plans. Even if you take a loan, it will come with strict terms and conditions.

You get the loan against the pledge of an asset as collateral. This collateral can be property or jewelry. If there is a 3 consecutive EMIs default, it will be considered as a non performing asset by banks and financial institutions.

According to the Securitization And Reconstruction of Financial Assets and Enforcement of the Security Interest Act SARFAESI Act, they will start the process of clearing the dues.

Legal action would be taken against home loan defaulters in India. A

loan defaulter notice

will be sent to you to settle your liabilities within 60 days. If you default on the home loan or if you fail to settle your dues even within 60 days the bank will send you another notice (defaulter notice) stating the auction date of your collateral. Or if your collateral is an insurance policy it will be surrendered prematurely to the insurer.

It is a long process. So the bank gives you enough time to repay your loan to avoid this. I hope you have the answer to your query:

what happens if i default on my home loan.

Check your home loan EMI here Read more: How to pay home loan EMI through credit card? What is MOD charges in home loan?

 

Generally in cases of collateral loans on property, the defaulters face a lot of challenges. In fact, if the repayment on home loan is delayed, the borrowers risk losing their asset/ collateral. As has been mentioned above, you will have to face the legal consequences and may end up losing your property and any value that comes out of it. But did you know before any of this is executed, you have certain rights. I will tell you about those as well.

Calculate EMIs and get information about monthly payment on home loans here

What are the rights of home loan defaulters?

Before I explain about the home loan recovery process, you should know what are the rights of a bank home loan defaulters.

Right to adequate notice

The banks have to send notice to the home loan defaulter with adequate notice period. 

Right to fair valuation of assets

The lenders if taking an action and choose to sell off the collateral should evaluate the right asset value. They shouldn’t only work on realising their loan value.

Rights to get balance out of the proceeds

After the auction, the borrower must get the balance proceeds after the lender realises their loan amount.

Right to right treatment

During the home loan recovery process, the lender must treat the borrower with respect. The borrower has the right to humane treatment. 

What is one time settlement scheme for home loan?

The One Time Settlement is offered by banks to the borrowers when they realise that the defaulter cannot pay the loan amount via auction of their assets. The levy is given when the default period is more than 2 or 3 years. If a borrower chooses to opt for this scheme, they should know that it has a direct impact on Credit Score.

Read more:

What is loan disbursement

How to calculate prepayment of home loan

My neighbor bought a flat with a housing loan a few years ago but when the pandemic hit, he started facing financial issues after a job loss. Overwhelmed by poor health and high medical bills, he started struggling to pay his housing loan EMIs. He talked to his bank regarding this. Let me tell you what his bank told him about the home loan defaulter legal action. If you miss one or two EMI payments due to some reason, the bank will send a small warning. However, if you don’t make the EMI payments for 3 consecutive months, then the bank will mark you as defaulters and send you a notice. If you have genuine reasons and great credit history, then the bank might give you the benefit of some grace period. However, your CIBIL score will get badly affected due to the default. Bank Loan Default Consequences If the bank decides to name you as a defaulter, then you will receive a full and final notice of 60 days under the SARFESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act). This Act allows financial institutions to directly auction commercial or residential properties that have been pledged with them to recover loans from borrowers. These 60 days will be your final chance to repay your outstanding EMIs before the auction. After which, your house will be auctioned in the open market and all the dues will be recovered by the bank. You will be given any excess funds received on account of the auction. Also, the auction process is time-consuming and the house owners usually don’t get the best prices of the property in the auction. So, in case of default, I suggest you sell your property on your own and pay back the dues to the bank. Now you know what happens when you default on home loan. To avoid such situations always do an eligibility check before applying for a home loan. You can check it on NoBroker with one click, here,

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Check Out NoBroker’s Home Loan Services Read more: When can I transfer my home loan to another bank? How to reduce home loan interest rate? This is all on the the home loan defaulter legal action.