What happens when you stop paying your home loan EMIs? Here’s what the bank can do
Missing a home loan EMI may feel like a temporary setback, but if payments remain unpaid for a long period, it can result in a series of legal processes that could ultimately result in your home being auctioned off. Here is a step-by-step breakdown of what the law allows lenders to do.
The 90-Day deadline
After missing your EMI for 90 consecutive days of non-payment, your loan is formally classified as a Non-Performing Asset, or NPA, under the Reserve Bank of India’s Prudential Norms on Income Recognition, Asset Classification and Provisioning (IRAC norms). For overdraft accounts, this threshold is longer, 180 days.Once classified as NPA, your account is reported to credit information companies such as CIBIL, which can significantly damage your credit score and affect your ability to borrow in the future.
What actions can a lender take
Once your loan is classified as NPA, the bank acts under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. This is the primary law that allows banks to recover dues from defaulting borrowers without going to court.The bank must first issue a written demand notice under Section 13(2) of the SARFAESI Act, giving the borrower 60 days to clear the entire outstanding loan amount. It is a legal requirement before any further action can be taken. If the borrower responds with a representation or objection during this period, the bank must communicate its reasons for rejecting that objection within 15 days.
- Taking possession of the property
If the borrower fails to pay within 60 days, the bank can move to Section 13(4) of the SARFAESI Act and take possession of the property. This is done by delivering a possession notice to the borrower and affixing it prominently on the property, typically on the outer door. Within seven days of taking possession, the bank is also required to publish this notice in two leading newspapers.If needed, the bank can approach the Chief Metropolitan Magistrate or District Magistrate under Section 14 of the SARFAESI Act for assistance in physically taking over the property.
- Valuation and setting a reserve price
Before proceeding to auction, the bank must get the property valued by an approved valuer. Based on this valuation, a reserve price, the minimum acceptable price, is set. The bank then proceeds to sell the property through one of several permitted methods: public auction (including e-auction), inviting tenders from the public, obtaining quotations, or private sale.Any auction conducted via public methods must be advertised in a newspaper.Before the actual sale, the bank must serve the borrower with a further notice of 30 days. This gives the borrower one last window to either pay up or make alternative arrangements.If the sale does not go through in the first attempt, the bank must issue a fresh notice of 15 days before trying again. Any sale through a method other than public auction or tender must be on terms agreed upon in writing between the bank and the buyer.
- Sale completion and certificate
The sale is considered legally complete once the auction purchaser makes full payment and the bank issues a sale certificate in the buyer’s name.
How much time do you actually have?
The minimum time from the first missed EMI to an actual auction is around 105 days, though in practice the process often takes considerably longer given the procedural requirements at each stage. This means borrowers have multiple windows to step in and settle their dues.Importantly, even after the process has been initiated, a borrower can halt the proceedings at any stage by paying the full outstanding amount along with applicable interest and charges — as long as the sale has not been completed.
