The recent slump in the real estate industry means several major builders are unable to complete their housing projects and hand over possession to their customers, leaving them in the lurch. As is the usual practice, many of these customers have taken home loans, and they have to continue paying EMIs on their loans with no delivery date in sight. It has caused a lot of confusion and put many of them in dire straits financially. Banks will continue to demand EMI payments and if these customers default, the lenders can seize other assets to claim their dues. The unfortunate truth is that the principle of caveat emptor is written into the legal regime regulating such situations. It means that the customer continues to be liable as the customer should somehow have known better. While this is a bad position to be in, there are some solutions they can consider.
Consumer Dispute Redressal Commission
Ordinarily, approaching the court in case of such defaults by builders would be an intimidating option due to the high cost of long-drawn judicial processes with no definitive guarantee of relief. But the Consumer Dispute Redressal Commission (CDRC), at the district, state and national level, offers a substantially better alternative. In recent cases, the commission has ruled against leading builders and imposed penalties for delays and non-delivery of possession. Moreover, many affected homebuyers are creating registered associations to file their cases before the National CDRC, saving their time and money by going for something akin to a class action suit.
Criminal courts are powerful entities, and the defaulter company can have a bailable or non-bailable warrant issued against its representatives if they do not appear before the court and respond to your complaint regarding the default. However, criminal courts in India usually have a very long queue of pending cases and hearing dates often happen several weeks apart. Even when the proceedings take place without undue interruption, the defaulter company often employs a battery of lawyers to confound all legal proceedings.
National Company Law Tribunal
When builders default, they often declare bankruptcy, in which case they are taken to the National Company Law Tribunal for liquidation. The process is often messy and long-winded, but potential homebuyers facing default can claim compensation through this process as unsecured creditors. It means they will receive a share of whatever money is left once the operational and financial creditors (secured creditors) have had their dues. The Supreme Court has recently shown its willingness to hear a plea made by the homeowners in the Jaypee default case to allow such creditors to be considered secured, and if it rules in favour of the same, it will come as a huge relief to homebuyers.
The RERA shield
The Real Estate (Regulation and Development) Act or RERA, passed last year, is the legislation designed to protect the interests of homebuyers. All future housing projects must be registered under this Act, and the law requires housing projects to keep a minimum amount of money in a separate account for each of the projects. In case of default, affected homebuyers can be compensated from this money.
If a construction project has been 'approved' by a bank, the bank can be made a party to the dispute, especially when it has lent construction finance separately to the project. In such cases, the bank can be made a party to the court proceedings. The bank can also claim the home loan debt from the builder as it is essentially two loans on the same asset, one from the bank for construction, pledging the entire project, and another from the consumer who purchases the flat in the same project that the bank has lent to. In some cases, the construction company offers to pay 80 per cent of the loan EMIs until the construction is completed after the bank has done its due diligence. It is because aggrieved homeowners can claim that the bank has erred in approving the project. A homebuyer can also approach CIBIL to expunge the default that the banks have reported or approach a court to expunge the remarks on his/her credit history in such cases. Where the banking system has defaulted, homebuyers may have to depend on the government.
For thousands of distressed homebuyers, the government is the last line of hope for some compensation. In the case of Amrapali, Uttar Pradesh Urban Housing Minister Suresh Khanna said, "There are nearly 40,000 homebuyers whose investments are stuck in various Amrapali housing projects. We have decided to give them relief. They will pay the remaining amount only when the builder readies the project for possession." Other affected homebuyers may get similar relief as the disputes continue to attract attention.
Author is Co-Founder and CEO, LoanAdda.com
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