Are You A Loan Defaulter? Know Your Rights!

It cannot be disputed that loans are a person’s biggest liability and must be repaid in a timely manner. In fact, the entire process of taking a loan and getting it approved is challenging. To add insult to injury, job loss, unemployment, and other misfortunes could lead to troubles when it comes to repaying the loans. This is when a person gets tagged as a “loan defaulter.” Non-Banking Financial Institutions or banks begin the recovery process of the dues when a default has been made by the borrower.

However, all actions initiated by Non-Banking Financial Institutions and banks should be pursued according to the laws of the land. Loan defaulters or borrowers are entitled to use a similar defense as the lenders, and in case of troubles with the recovery agency, loan defaulters can exercise a set of rights to protect themselves.

When an individual defaults on loan, he/she starts getting communications from the financial institution or lender. As per the loan’s terms and conditions, the lender then lists the individual as a Non-Performing Asset after several defaults and begins legal action against him/her. Once the account of the borrower has been categorized as a Non-Performing Asset or his/her payment has been due for 90 days, the financial institutions or banks can initiate action under the SARFAESI Act, 2002. According to this act, the lenders can sell the security through a private treaty under the act or a public auction. The proceeds are then used to repay the loan.

On the flip side, banks can also initiate recovery proceedings under the DRT Act, 1993, before the Debt Recovery Tribunal. Non-Banking Financial Institutions and banks can also transfer the accounts of the borrower to recovery agents or debt collection agencies that work on their behalf to recover the loan amount from the borrower. If lenders do decide to go ahead with a debt collection agency or recovery agents, borrowers might be subjected to harassment to clear their defaults. That said, experts often argue that if a borrower can convince the bank that the defaults are temporary and he/she would repay the loan soon, the lender could delay legal proceedings. Hence, if you have defaulted on a loan, it is of paramount importance that you maintain clear communication with the financial institution or the bank to get out of trouble as soon as possible.

Talking about defaults on home loans, banks usually issue a notice of 60 days to the defaulter. Once the 60 days are completed, financial institutions can sell or auction the house. For this purpose, banks also send a valuation report to the borrower, and the latter gets a month’s time to arrange the funds before the auction of the house.

As is evident, in the case of a loan default, both the lender and the borrower have a set of rights that they can exercise. If you are a loan defaulter, the key to getting out of any kind of legal turmoil is to clearly communicate with the lender and negotiate a working plan to repay the debt.

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