Bank Possession Notice : Legal Rights Of Borrowers Explained
Understanding your legal rights after receiving a bank possession notice under the SARFAESI Act.
Warning bells start ringing when a bank pastes a possession notice and rightfully so. As a borrower you may feel that the bank has now taken over your home/ shop/factory/property that you had mortgaged with them. Legally this is not always true. Issue of a possession notice by the bank or their lawyer is a significant enforcement step. But it neither shuts out all defenses available to borrower nor does it make banks’ notices, valuation, or process error-free and beyond challenge.
Legal rights of a borrower upon receiving a bank possession notice accrue under SARFAESI Act, 2002 when the bank or financial institution tries to enforce its security interest in your property. Date of notice? Loan account details, Previous demand notice? Property description? Stage of possession? Issuing bank versus borrower appointed valuer etc. Can all become relevant questions to ask yourself. Fear can lead to panic decision which can compound a simple issue.
BK Singh will first help you read the notice and understand exactly what bank’s notice of possession really says.
Emotions over documentation. Your home isn’t just a piece of property with legal rights attached to the borrower, co borrower and guarantor whom the home loan was originally granted to. Shop or factory could very well be livelihood of the borrower, family dependent on borrower, employees of the shop; stock, machinery and regular business income. At BK Singh we often meet borrowers who mistakenly believe that the bank/REDAMC will throw them out of the house/shop/factory the next moment they paste this notice on the home/shop. Law interprets each stage differently.
Taking urgent help from a lawyer because bank sent you a notice is not recommended. But nor should you ignore the possession notice from the bank, offer to settle by giving away keys to your house or make cash payments without receipt if threatened that property will be sold tomorrow. Banks do have recovery powers but must comply with SARFAESI Act and rules.
Does your city matter in a Bank Possession Notice?
Be it Delhi, Noida, Ghaziabad, Gurugram, Faridabad or Mumbai, Pune, Bengaluru, Hyderabad or Chennai – if you have taken a loan from a bank, which is now trying to recover the loan by sending you notice for possession, then you are the affected borrower we’re talking about.
EMIs turning overdue, business losses, delayed receivables, sudden high medical expenses, unemployment from job loss; are just a few ways even genuine borrowers have slipped into long-term non-payment.
In this article we focus on bank possession notice and what borrowers should know IF your name OR relative partner’s name appears on the notice along with your property.
One may think; well this is the borrowers problem, since he took loan from bank. You will be surprised how much anxiety is passed on to co-owners, guarantor, business partners, family members living in the property, tenant etc. when a bank starts action under SARFAESI.
ADVOKATE BK SINGH here decodes what stage of recovery process your bank has reached?
Possession Notice, Possession by bank or Notice of Auction scheduled to happen in 60 days?
Take a deep breath. All three are different scenarios. How you approach the issue and urgency of dealing with it differ in every case.
Quick Look: Facts about Bank’s Notice of Possession
13(2).A demand notice can only be issued after the loan account becomes an NPA.
Notice issued under Section 13(2) would ordinarily give the borrower 60 days to pay the secured debt.
Under Section 13(3A), the borrower has the right to make a written representation/objection to the secured creditor.
The right to file an application under Section 17 arises after the secured creditor takes a possession action under Section 13(4).
As the name suggests, such application would have to be made within 45 days from the relevant Section 13(4) action.
Issuing of a Notice of Possession does not mean the bank has completed the process of selling the property.
Loan settlement/restructuring with banks is always negotiable commercially but not an automatic legal right.
WHATS DOES BANK POSSESSION NOTICE MEAN?
Once the bank sends you a notice stating you have defaulted beyond the period communicated in the demand notice, they may proceed to send you notice of possession.
The bank as a secured creditor tries to enforce its security interest granted over the property by sending you this Notice of Possession.
Many borrowers I speak to think this is the final step before they lose their home/shop. Nothing can be further from truth. A notice of possession does not automatically mean the bank will throw you out tomorrow. Several elements are still open for discussion even at this stage. The outstanding amount, past payments made, penal interest if any, wrongful classification of loan as NPA, who has issued the notice? Authorized officer?, What is the description of the secured asset?, Did bank follow the statutory requirements under SARFAESI, etc. can all be angles to contest the banks action.
Notice of Possession can be immediately before the sale process starts or even at the stage of taking symbolic possession. Both are different from Notice of Auction. BK Singh advice borrowers to never conflate the two. You lose valuable time getting panicist legal advice when both matters are different.
REQUIREMENTS UNDER SARFAESI FOR ISSUANCE OF A POSSESSION NOTICE
As per SARFAESI Act, banks have powers to enforce their security interest without having to first file a civil lawsuit and wait for a decree from a civil court. When this law applies depends on who your lender is, type of loan, what security you provided, other eligibility criteria etc. There are prescribed steps for the lender to follow when issuing notices and recovering property.
ISSUANCE OF DEMAND NOTICE UNDER SECTION 13(2)
As per Section 13(2) of the SARFAESI Act, secured creditors have the power to issue this notice when a Default has occurred and the bank has classified your account as NPA.
I d recommend you make a file for all correspondence with bank to-date and keep it updated with future notices or receipts of any payments made.
Such notice shall be in writing and demand that the borrower lears his liability within a period of 60 days. It shall also specify the assets against which the financing was secured and which will be enforced if default continues.
As a borrower you have rights under Section 13(3A). You can send a written representation or objection to the secured creditor. The bank is now obligated to consider your response and communicate the reasons for rejecting your request, if they do. This step becomes the legal record many cases.
I meet borrowers who approach Advocate BK Singh and realize they have a payment receipt which they were told isn’t required by bank, or they have calculation objections never put in black-white to bank or they have proof related to title objections which were never communicated in first place.
POSSESSION NOTICE vs ACTION TAKEN UNDER SECTION 13(4)
The borrower payment dues are not cleared post the demand notice period. Now the bank can enforce the security by taking the following steps under Section 13(4) of SARFAESI.
Taking possession of the secured asset, affixing a possession notice on the property and publishing it in the daily newspaper in such form as may be prescribed by the central government. Under Section 14, if necessary the bank can even ask for help from Chief Metropolitan Magistrate or District Magistrate to help take possession of the property.
Still nothing in law prevents borrowers from challenging each action. The timeline of each notice served, what is stated in the notice agenda, improper identification of asset/property can all be questioned legally. Let me explain.
FILE AN APPLICATION UNDER DEBT RECOVERY TRIBUNAL
Section 17 provides that an “aggrieved person” can file an application with Debt Recovery Tribunal after a Section 13(4) action has commenced.
Legal timelines are important. You would generally have 45 days from date of the relevant Section 13(4) action to file such application. The longer you wait, the more difficult it could be to file an application with the Tribunal even if the borrower has valid grievances.
If you need specific information regarding the workings of Debt Recovery Tribunal. Visit Best DRT Advocate Blog. At BK Singh we can first evaluate if the facts of your case even pertain to a possession suit, auction process, recovery calculation or another SARFAESI matter.
WHOM DOES A BANK POSSESSION NOTICE CONCERN?
If the property in question is your home, office, warehouse, shop, commercial asset or Loan Against Property then yes, borrower should take notice seriously and review it quickly.
Guarantor and Co-Borrowers should take notice seriously too. Especially if their personal asset/forms of personal identification was put up as mortgage security along with borrowers property.
Small businesses get affected on multiple levels. Not only can recovery be enforced against the premises in which your business operates, but your account receivables could be overdue from clients causing working capital crunch. Many borrowers/bank managers I have met were surprised to learn that as a Director they gave personal guarantee to the bank leaving their personal assets at risk from the lenders.
Read our Property Loan SARFAESI Case Study. Commercial borrowers who have mortgaged property to the bank will understand better why property titles, loan agreements and faulty-valuations become relevant topics to discuss long before you get a notice from bank.
WHAT TO LOOK AT IN BANK POSSESSION NOTICE YOU RECEIVED
First and foremost hurry should not force you to make mistakes. Take stock of what you have. Safely store the notice received along with envelope, newspaper publication copy if any. (Colour photocopy of all document is fine). Take a photograph of the notice if it’s pasted on property, along with mode and date of its receipt.
Does the name of the borrower and co-applicant/ Guarantor matches with bank records? Does property description, loan account number and the outstanding amount claimed by bank against the account is correct?
You will have to cross-check every rupee claimed by the bank against your sanction letter, loan statements, repayment schedule, any settlement correspondence and payment receipts. An entry of credit may have been missed or a levy explained.
Location of other loans tied to this property/account? Borrowers often have more than 1 loan facility against their property. Example mortgage/loan against property/home loan + top-up loan + OD against same property + business loan taken by husband against property ? Guarantor to wife’s loan?
Remember, if you make a settlement with bank for one account, it doesn’t mean the bank has closed other loans/part of the loan you weren’t aware of.
DOCUMENTS THAT CAN HELP IN POSSESSION NOTICE DISPUTE
- Please file these papers neatly and begin putting together your reply or next course of action. Below are some crucial documents that you must gather to begin with :
- Loan sanction letter and EMI schedule.
- Mortgage DP deed and property paper/titles.
- All bank statements/EMI receipts/ On-line payment acknowledgements.
- Notice under Section 13(2) demanding repayment. Objection in writing sent to bank (if any).
- Notice of possession / newspaper copy / picture of notice affixed on property.
- Any Correspondence sent by bank for settlement/restructuring/one-time settlement.
- Valuation report/auction notice/reserve-price/transaction-deed/publishing copy of sale deed etc. ( if the bank has sent these to you).
- Guarantor sign documents / company Board Resolution / partner deed affirming guarantee ( if any was provided).
- “You know what is most important.” Cues ADVOKATE BK SINGH. “Timeline.” Banks try to speed notice process if borrower doesn’t compare date of receipt of notice with date of their own payment records.”
WHEN TO SEEK A LEGAL OPINION?
If a possession notice has been received; You have received a Section 14 order ; Bank has visited your property to affix possession notice; You are expecting a notice of auction from bank; The outstanding amount being claimed by bank seems erroneous; OR a settlement amount has been offered to bank by you.
In each of these cases timely advice will help you protect your rights. Especially if the borrower is a senior citizen, guarantor, sole-earner of family, owns small- scale business with operations on the premise.
Taking quick help doesn’t mean you will certainly have to sue bank. First learn what the notice says, understand your account by checking payment records and only then can we discuss if you have a genuine technical objection or a case which needs loan restructuring or documented negotiation with bank.
We will go through the notice received, your account statement, securities/papers of the property in question and any communication sent to you by the bank and highlight where you are today in simple terms.
HOW BK SINGH CAN HELP YOU?
Advocate BK Singh has experience dealing with banking recovery, SARFAESI Act issues, Debt Recovery Tribunal (DRT) cases, Loan Settlement problems, Guarantor issues, Possession and Auction threats by banks and recovery agents. The best course of action depends on facts, loans papers, stage of notice served, jurisdiction of Tribunal etc. and your actual ability to pay the loan.
Once we understand the facts, we can tell you whether you urgently need to send in a written objection, get your documents corrected, enter into a settlement negotiation or if you need to file a DRT application to stay an unlawful recovery action. No lawyer can guarantee results on your notice. Every legal notice from bank is different and deserves a separate discussion.
FAQ’s:
Ans: A possession notice is an enforcement action taken under SARFAESI. Bank has not yet obtained orders from civil courts to eject you from your premises. Nor does the notice automatically mean the bank will complete the sale process and recover the property in 15 days.
Ans: SARFAESI Notices cannot be issued by banks until the account is declared NPA by them. Missing one EMI is not equivalent to receiving a possession notice.
Ans: It is a notice sent to borrower under SARFAESI Section 13(2) to discharge his secured debt within 60 days of receipt of such notice. Remember the borrower has the right to send in a written reply to the bank at this stage.
Ans: Yes. borrower who is aggrieved by any action taken under Section 13(4) can file an application before the DRT under Section 17 of the SARFAESI Act. The timeline for filing this application would normally be within 45 days. Please consult Advocate BK Singh to know your applicable dates/timelines and what documents you have already.
Ans: Yes. You can settle your loan after a possession notice has been received. But remember any such offer made to bank must be confirmed in writing. Bank is under no obligation to stop the SARFAESI process if you only speak to them on phone.
Ans: Yes it can. Just like how a SARFAESI notice affects you, bank can issue notice to guarantor. Whether the bank actually does so depends on the loan terms, the guarantee documents and what actions the creditor wishes to initiate.
Ans: Bank will not necessarily auction your property. The notice is merely at the sale-notice stage. You have not even received a Default Notice from the bank under SARFAESI. The loan needs to be classified as NPA, Demand Notice sent, Demand Notice lapse and then a Notice of Possession sent. Adv Bakul Sihng can verify based on dates if your property is in the process of being sold by bank under SARFAESI.
Ans: Cross check the outstanding amount with your loan account statement, loan sanction documents, bank payment receipts and previous correspondence with bank. Once you locate your records, point out the bank’s mistakes directly with repayment proofs.
Ans: Yes. If your residential property which is being used as security by bank for your loan is rented-out by you to a tenant; the tenant will be affected if bank initiates recovery action under SARFAESI. However, this will depend on your specific facts, tenant history filed with property and when the tenancy was agreed upon/reserved.
Ans: NO. Read what the notice of possession says and know EXACTLY what legal stage you are at. Depositing keys to your house may have future legal implications on your ability to recover your house. Don’t do it because you are scared or a lawyer threatens you to give away your house keys.
CONCLUSION
BK Singh advice – Stay calm if you get a bank possession notice. You do not have to vacate the property that day. You also do not have to agree to settle with bank if you think the outstanding amount is wrong. The SARFAESI Act, allows borrowers rights with respect to notice, objection, approaching Debt Recovery Tribunal, proper documentation and right to be heard. Call ADVOCATE BK SINGH and know if you have a legal issue related to demand notice, possession notice under Section 13(4), settlement offer communication, DRT filing deadline or an auction threatened call. We can help you sort out legal queries sooner so you don’t have to face further losses later.
Did you find this Blog helpful? Every notice from bank follows a timeline.
