InvestorQ : What does the law say on auctioning of a home loan property?
Rohan Bhadani made post

What does the law say on auctioning of a home loan property?

Ankita Patil answered.
3 years ago

After a borrower defaults, or misses instalments for six continuous months, the bank will give the borrower a two-month grace period to make the payment. If despite the grace period, the borrower fails to make the payment, then the bank will declare loan a non-performing asset (NPA).

After it has declared your loan an NPA, the bank can auction the property to recover its dues.

With respect to the law, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) allows banks and non-banking financial institutions to auction properties (be it residential or commercial) if borrowers fail to repay their loans.

The SARFAESI Act enables banks to lower their non-performing assets by adopting various measures to recover their dues. Although banks have the right to enforce SARFAESI to recover their NPAs without the intervention of a court, they choose this as the last resort. This is because banks are primarily interested in getting their money back, rather than getting involved in legal recourse, because a legal recourse involves attaching and auctioning a house, which is extremely time consuming. Hence, banks follow up the matter, that is non-payment of dues, with the borrower for at least six months before taking any legal action.