Banks are trying to repossess and auction properties as more home loans get lazy

Mumbai: Lenders attempt to take control of more properties that serve as collateral for loans and put them up for sale as borrowers fail to repay after two waves of Covid-19.

Ads by public and private sector lenders of defaulting borrowers whose homes they seek repossession under Sarfaesi Law are a common sight these days. The Securitization and Restoration of Financial Assets and Security Enforcement (Sarfaesi) Act of 2002 allows banks and financial institutions to sell secured property if a borrower defaults on their repayments. As the effects of the two waves of Covid-19 dissipate, even mortgages, once considered the least likely to default, have not remained entirely resilient. According to bankers and industry experts, the higher number of demand and ownership notices is also the result of the stress of the first wave last year masked by the moratorium.

“There is no denying that we are seeing an increase in stress on mortgages after the pandemic. Many borrowers who took advantage of the moratorium were unable to repay. We hope the situation will change as economic activity picks up, “said a banker from a major public bank.

In his opinion, in addition to the current stress, there is still a certain recovery backlog from last year, when the lenders treated stressed borrowers a little gently. The banker quoted above said it takes at least six months from the start of the recovery process for them to put a property up for sale.

“After you have issued a reminder to the defaulting borrower, you must wait 60 days to take possession of the property unless he pays back. To take over the property, banks have to move the court and it will take a few more months before the result is available. After that, assessments and other sales preparation exercises will be carried out, “he said.

For example, on August 18, Axis Bank published payment orders against 30 mortgage debtors. The bank announced that for these borrowers the reminders could not be delivered to their last known address and therefore public announcements had to be made. The notices indicated that most of them had gone bad between October and December last year, and notices were issued in April.

Mortgage stress was felt when India’s largest lender, State Bank of India (SBI), reported an increase in non-performing loans from the sector. The outstanding mortgage portfolio amounted to 5.05 trillion euros as of June 30, and recorded a 59 basis point (bps) increase in non-performing loans.

Experts pointed out that the extent of the burden can be read from the fact that private lenders are also increasingly using the Sarfaesi law. Unlike public sector banks, private lenders prefer bilateral deals and one-time settlement deals to collect smaller non-performing loans.

However, it is not easy to find buyers for repossessed homes. First of all, existing litigation in such properties makes it difficult for new buyers, many of whom may not be aware of the pitfalls of such auctions.

“The property or its title may have defects that are not necessarily noticeable at the time of the auction. Also, as with any type of home resale, legal transfer and re-registration would be required, “said Anuj Puri, Chairman of Anarock Property Consultants.

Puri added that if the property is in an extremely old building, it may never have been officially registered and that registration will hold the current buyer responsible for the arrears in paying stamp duty.

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