V Prem Shanker & Ravi Teja Sharma, ET Bureau Aug 9, 2014, 10.45AM IST | Economic Times
CHENNAI/NEW DELHI: A big chunk of Ratna Misra’s salary will disappear from her account this weekend when the bank debits her home-loan installment.
The 40-year-old HR professional is paying the EMI knowing that she’s unlikely to get her dream home. The under-construction building in Chennai’s Moulivakkam area where she had booked an apartment collapsed recently, killing 61 people. The builder is behind bars, and what is left in place of the building — ironically called Faith—is a heap of debris.
She and the others who took loans to buy apartments in the project must continue paying their EMIs, or their credit scores will take a hit. A lower score will hurt the prospect of getting a loan in future.
“Even if a buyer stops paying EMIs because of such situations, banks will have to treat it as a default which will be reflected in the person’s CIBIL score,” said Renu Sud Karnad, managing director of Housing Development Finance Corporation, India’s largest mortgage lender.
Credit Information Bureau Ltd, or CIBIL, compiles credit scores of borrowers based on their loan repayment history, and banks consider this data to give loans. There are many more who are trapped in situations where they are paying hefty loan installments every month with little or no hope of getting their homes.
Deepak Patil, a senior BPO executive, booked a home in a project on the outskirts of Bangalore in 2004. He was to get the house in December 2006 but is still waiting for it. The builder has fled after mismanaging funds. Karnataka Bank, which had funded the project, has sold its loan to the builder as nonperforming asset to Asset Reconstruction Company (India) Ltd, which buys stressed loans from lenders.
Nexus between banks, builders
“Most of us have paid over 95% of the cost of the house to the builder and have been paying our EMIs for the last 10 years even though there was no construction happening,” said Patil. Misra too is going down the same path. The Rs 53,000 that the bank would debit this month is the second EMI since the building collapsed in June, and she is clueless about how many more EMIs will go before it stops.
It may become risky if she decides to stop paying, as Kavita Thonangi, who works with consultancy firm Deloitte, found out a few years back. Thonangi had bought a two-bedroom apartment in a Hyderabad project by Ramalinga Raju-owned Maytas Properties in 2006. It was to be delivered by December 2008 and in January 2009, the Saytam scam was unearthed and Raju, who also headed the software firm, was jailed. The project was still only at foundation level.
While Thonangi continued to pay her EMIs, in 2011 she informed the bank that she was filing a case with the AP State Consumer Disputes Redressal Commission and would stop her EMIs. “But the bank later filed a criminal case for cheque bounce on me,” she says.
Though she won the case at the state commission, and the decision was upheld by the national commission as well as the Supreme Court, asking the builder to refund money with 12% interest, the irony was that she can’t take another loan today.”My CIBIL rating has fallen drastically, because I stopped paying my EMIs. I can’t take a loan from any bank even though I have won the cases,” she rues.
Lawyer Vaibhav Gaggar, partner at Gaggar & Associates, says the nexus between some banks and builders is so strong that no matter what a customer does, he will always be at the receiving end. In case of the collapsed Chennai building, at least three public sector banks had independently evaluated the structures. They had not only declared them safe, but also said they will be stable “for more than 60 years”.
Most banks offer home loan insurance when home buyers take a loan and bankers say almost 60-70% people take them. In Misra’s case, even that wouldn’t have helped.
Advocate S Sethuraman, who has represented banks in many civil disputes, says there is no insurance that covers an under-construction flat. The cover in a home-loan insurance starts only after the home is registered in the buyers’ name. Until construction is over, it is the responsibility of the builder to secure the building.
Most builders take a construction risk insurance, but some don’t.HDFC’s Karnad says the lender insists on the builder taking an insurance cover before funding projects. “Builders are funded only on condition that they have a construction risk insurance in place. For individual home loans, buyers are advised to check with their builders on this.” There are also instances where the projects get into legal tangles and the buyer ends up on the losing side.The Allahabad High Court recently ordered builder Supertech to demolish two 40-storey under-construction towers for flouting rules. The court ordered refund to buyers with a 14% interest, compounded annually.
Supertech gave three options to buyers — continue with them as it pursues the case, take a refund or take an alternative apartment in another project by the company. One of the buyers, Dhirendra Sharma, has decided not to go with any of the options.
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