Banks are trying to reclaim property, auctioning real estate as more mortgages become unprofitable

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Mumbai: Lenders are trying to take control of more property used as collateral for loans and put them up for sale as borrowers are unable to repay debt after two waves of COVID-19.

Advertisements creditorsIn both the public and private sectors, insolvent borrowers whose homes they wish to return to ownership in accordance with the Sarfaesi Law are commonplace these days. The Financial Assets Securitization and Reconstruction and Collateral Enforcement (Sarfaesi) Act of 2002 allows banks and financial institutions to sell collateralized property if a borrower fails to meet its repayment obligations. As a result of two waves of covid-19 collapse, even mortgages, which were once considered less likely to default, have not been resilient enough. The increased demand and ownership notices are also a result of the stress caused by the first wave of last year, which was masked by a moratorium, according to bankers and industry experts.

“It cannot be denied that after the pandemic we are seeing an increase in stress in the mortgage sector. Many borrowers who assumed the moratorium were unable to pay off the debt. We hope that as economic activity grows, the situation will change, “said a banker at a large state-owned bank.

Apart from the current stress, he said, there is some recovery lag since last year, when lenders eased the stress on borrowers a bit. The aforementioned banker said that from the start of the foreclosure procedure, it will take them at least six months to put the property up for sale.

“After issuing a Notice of Claim to a defaulting borrower, you must wait 60 days to take possession of the property if he / she does not return the money. To transfer ownership to banks, you need to go to court, and the result takes another couple of months. After that, evaluations and other exercises are carried out in preparation for the sale, ”he said.

For example, on August 18, Axis Bank posted claims notices for 30 defaulters on mortgages. The bank said that for these borrowers, demand notices could not be delivered to their last known addresses and therefore had to issue public notices. The notifications revealed that most of them soured between October and December last year, and the notifications were issued in April.

That there is palpable stress in mortgages was made clear when India’s largest lender, the State Bank of India (SBI), reported an increase in problem loans in the sector. The outstanding mortgage portfolio was 5.05 trillion As of June 30, problem loans rose consistently by 59 basis points (bps).

The experts pointed out that the degree of stress can be gauged by the fact that private lenders have also increased their use of the Sarfaesi law path. Unlike public sector banks, private lenders prefer bilateral deals and lump sum offers to recover smaller bad loans.

However, finding buyers for seized homes is not easy. First, existing litigation over such property makes it difficult for new buyers to emerge, many of whom may not be aware of the pitfalls of such auctions.

“There may be flaws in the property or its title that may not necessarily be apparent at the time of the auction. In addition, as with any type of residential resale, a legal transfer and re-registration will be required, ”said Anuj Puri, Chairman of Anarock Property Consultants.

Puri added that if the property is in a very old building, it may have never been officially registered, and registration now makes the current buyer responsible for late payment of stamp duty.

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