Almost every home loan borrower has this fear: What if I default? Due to the increase interest rates could hit those with floating rate home loans, triggering a rise in defaults.A loan, which could be comfortably serviced at an 8% floating interest rate could cause substantial discomfort after the rates rise to around 12%.

For some, it could even lead to a problem in repayment. This scary scenario isn’t all that rare. According to rating agency Crisil’s forecast, the share of bad loans is likely to swell to 4% of banks total loans in the next two years.
In case you are unable to make a payment, it is best to approach the lender for an amicable settlement. If all the efforts undertaken for repayment fail, the lender is likely to take over and sell the mortgaged property.

No doubt, it is very painful to let go of your prized possession, which you may have acquired with your lifetime’s savings. However, in such circumstances, borrowers need to keep an eye on their rights, which provide adequate opportunity to repay.
As regulated entities, there are certain limits that banks cannot cross. For instance, RBI guidelines do not allow a lender to repossess without proper notice.

Usually, banks invoke the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act for a quick recovery. This involves a 60-day notice period. But the Act states that such a notice cannot be issued until the borrower’s account is classified as a non-performing asset; that is, when it is 90 days overdue.
If the borrower fails to repay even after the notice period, the bank can go ahead with the sale. However, in order to sell, the bank has to serve another 30-day notice mentioning the sale.

Further, if your mortgaged home has to be sold, the bank has to publish a notice regarding the same in two leading newspapers specifying the reserve price. The sale has to be a private treaty sale, based on conditions mutually agreed upon by the bank and the borrower.If you feel the property is undervalued, you can raise an objection. You can even sell your own house in order to repay the loan.However, you can do so only with the bank’s consent. The borrower can also introduce a prospective buyer to the bank or inform the bank about his intention to sell the property for clearing the dues.
If the sale proceeds exceed the outstanding loan, you are entitled to receive the surplus money unless the loan agreement states otherwise or prescribes a timeframe. Also, a person can file a suit against the bank if it fails to return the amount within a reasonable period. But if the sale proceeds are not enough to settle the loan, the bank can file a suit in civil court to recover the balance.

So, even if you fear of being a defaulter, there are always ways out. Its best to first consult your bank and inform them of your situation. Avoid being a defaulter!!