Top 5 Rights Of Every Loan Defaulter That You Need To Know

Posted by Alisa Mark on October 18th, 2019

Shreya took a home loan of Rs. 25,00,000 about a year back and paid regular EMIs up till the last two months. This was when her brother met with an accident, and she had to pay for the medical emergency expenses. As a result, it was difficult for her to keep making the scheduled EMI payments. She was notified by the lender that the loan will be turned to recovery agents if she does not make a payment on time.

Things got difficult, and Shreya did not know how to deal with this stressful situation. She ended up dealing with recovery agents who did not treat her right. This happened because she was not aware of her rights as a defaulter. Yes, there are rights for a defaulter applicable to every borrower and lender.

Nobody plans to default on a loan, and if recovery agents are to be believed, defaulting on a loan is nothing short of a criminal offense, and she had no choice but to make the due payment. However, this is not the case. If you ever get into a similar position for some reason, you need to know your rights. Here are the top 5 rights of every loan defaulter you need to be aware of.

1. A loan defaulter has a right to be treated in a humane manner

Being a defaulter does not mean that you are a criminal and have to be treated in an inhumane manner. There have been instances where recovery agents treated defaulters like criminals, and the banks had to take action to ensure that the defaulters are treated humanely.

A recovery agent has to behave decently at all times, and they should make calls only between 7 am and pm during weekdays. If they need to set a meeting, it has to be done between this time on weekdays. The defaulter has the right to choose an alternative venue for the meeting. You need to remember that you are not a criminal, and this is not a criminal offense.

2. A defaulter has a right to notice

A lender is legally required to provide enough time to the defaulter to make alternate arrangements for the repayment of the loan. This applies to all types of loans. A lender has to wait for a certain period before taking steps to auction off the assets held by them.

If an EMI is 90 days or more overdue, the lender will have to issue a notice for 60 days to the defaulter before taking any steps for recovery. A bank can only auction off the collateral if the defaulter does not respond within the 60 day notice period.

3. A defaulter has a right to have grievances heard

During 60 days provided by the lender, a defaulter has the right to put forward any objections about the auction of the collateral and repossession of the property. The lender has to provide an acceptance or rejection of the objection within seven working days before taking any action in this matter.

4. A defaulter has a right to receive a fair valuation

A loan defaulter has a right beyond the repossession of the assets by the lender. Before the lender proceeds with the auction of the assets, the lender has to issue a notice stating the fair value of the asset. The value will be estimated by the valuator of the bank.

The notice will contain additional information like the price of the auction, the reserve price, and the date of the auction. A defaulter can object in case he/she feels that the property is undervalued.

The defaulter can also look for prospective buyers who might give a better offer. If there is a buyer willing to pay a higher rate for the property, the defaulter can inform the lender about the same.

5. A defaulter has a right on the balance amount of the auction proceeds

Once the property is auctioned off and the proceeds from the same are greater than the money outstanding with the bank, then the defaulter has a legal right on the excess amount. Hence, the asset should never be written off before it has been auctioned.

It is wise to keep track of the auction proceeds and make a claim on the balance amount remaining if the auction proceeds exceed the amount outstanding. The lender can only claim the amount outstanding on loan. When an asset generates an additional amount, it has to be returned to the owner of the asset.

If you ever find yourself in a situation as Shreya did, you need to keep the above information in mind so as to ensure that the recovery agents do not give you unnecessary stress. The total notice period banks need to provide is 60 days.

Before an outstanding loan is classified as an NPA, there should be 90 days period, and a bank is required to respond to your objections to the notice within seven days.

It is not recommended to default in the repayment if you have funds on hand. However, if things are out of your control and you do not have the funds to make a payment on time, you should try to make the repayment within the notice period given by the lender.

You need to remember that a default will have an impact on your credit score and your future loan applications. Whether it is a loan or bill discounting service, you need to be aware of your rights as a borrower. If you default on the loan repayment, nobody has the right to treat you in an inhumane manner. If things go out of hand, you need to know your rights.

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