A loan is seen as a viable option to fulfil any big financial needs such as buying a house or a vehicle if there is a dearth of required funds. Loans allow a person to possess a property, go for higher studies or manage any other needs with the help of equated monthly instalment (EMI) payments each month.

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If you default on the repayment, the lender has a number of measures lined up to get back their money. A case in point is Gadar 2 actor Sunny Deol’s outstanding dues with the Bank of Baroda. Earlier this month, the lender had issued a notice about auctioning property kept by the actor as collateral to get outstanding dues amounting to Rs 56 crore. Though the notice was later rescinded after discussions between Deol and Bank of Baroda, the news sparked a lot of discussion about property auctions to recover loans. Here is a detailed guide on the matter.

What measures do banks have to recover dues if the borrower defaults on loans?

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002, is in place for lenders to recover money from defaulted borrowers. Under this legislation, lenders are empowered to take control of the assets put forward as collateral for the loan if the borrower is unable to repay the dues.

Can a bank auction my property if I default on my loan?

Once the bank acquires the property, it can lease, sell or give away the rights over the property to another entity. After the property is sold, any remaining money, after repayment of dues to the lender, is given to the defaulting borrower.

What is the process for a bank to auction off the property?

If the EMI is not paid for 90 days, the loan is characterised as a Non- Performing Asset (NPA). The information is relayed to credit bureaus and a formal demand for repayment is made to the borrower. If the borrower fails to respond, a legal notice is issued. If there is no response to the legal notice in 60 days, the lender moves forward with the possession of the property. The property is evaluated and the lender puts out a notice in at least two major newspapers inviting people for the auction at least a month before the event. The notice also asks individuals to submit their claims or any objections they have within 14 days.

What are the rights of the borrowers in this situation?

Borrowers can remit their dues and avoid the sale of their property any time before the auction. They have the right to ask for a reassessment of their property if they feel the value is too low.

Any money left over after the repayment is completed will be deposited in the account of the borrower.