What happens if a secured loan is not paid | What are bank rights in secure loan

To begin with, all we know is that when we take the secured loan from any bank, we have to keep our property as a mortgage and after getting the loan we have to pay the EMI at the given time. Today, here you will know about all the processes involved in the auction of the mortgaged property by the bank in case of default by the borrower step by step.

What is a loan?

A loan is the sum of money provided by the bank or the individual called "lender" to the organization or the individual called "borrower" with the promise of repayment within a given amount of time along with their discussed interest rate. The business behind this cash flow is that borrowers get money on time of their need and lender earn few extra amounts along with the original amount in the form of interest.

What is SARFAESI ACT, 2002?

SARFAESI Act - Stands for Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. It is a very powerful law that allows banks and financial institutions to auction the mortgaged property of defaulter borrowers to recover the loan amount without going to Court.

See what banks can not do if you default on the loan...

What will happen if you do not pay the loan?

Repayment of the loan amount is very necessary for every borrower. But sometimes, some of them cannot repay the loan amount due to financial problems or some other reasons. Then to recover that amount, the bank can sell your mortgaged property. So for that bank do the auction of mortgaged property (residential or commercial) for the settlement of loan amount under the SARFAESI ACT, 2002.

1. Non- Performing Assets: If a borrower cannot pay the installment on the due date continuously for 90 days or 3 months, the given loan account goes to the NPA ( Non- Performing Assets) Account. 
2. Bank sends a notice: After that Bank sends the defaulter a notice via mail, speed post, or letter under section- 13(ii) of SARFAESI Act, 2002. 
3. Repay in 60 days: Notice is like a reminder to repay the remaining loan amount with interest on or before 60 days.
4. Possession of the mortgaged property: But if the borrower ignores the notice or not pays the remaining loan amount in the given 60 days the Bank again sends the notice regarding possession of the mortgaged property in case the borrower does not repay the loan amount in the next 30 days.
5. Final notice: After 30 days, if the borrower again ignores the notice then Bank sends the last notice regarding the auction of the mortgaged property in which date, place, time, and selling price are mentioned properly or the bank can sell the mortgaged property or give on the rent also to recover the remaining loan amount.

For Auction details, Bank gives an advertisement in newspapers or on their website as well.

One thing defaulter borrowers have to know about the auction money is that if the auction amount is more than the value of the remaining loan amount then after the auction and the settlement of the loan, the bank has to give the remaining amount to the defaulter borrower.

For example:

Suppose Mr. X cannot pay the loan amount of Rs.1000 and the market price of his mortgaged property is Rs.5000. So, now if the bank auctions the mortgaged property for Rs.5000 then after the auction and the settlement of the loan in the amount of Rs.4000, the bank will return to Mr. X.

-Chanchal Singh