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Mortgage of a decreased person_the joint debetor or the legal heir must reimburse the bank

Mortgage of a decreased person_the joint debetor or the legal heir must reimburse the bannk

In the past 18 months, the COVID-19 pandemic has ruined the finances of many.

A difficult situation in which the relatives of deceased relatives found themselves was when they discovered mortgage loans that the deceased was paying.

If a borrower dies without having fully paid the loan, the obligation falls on the co-borrower or legal heirs.

Was the home loan secured?

Carefully review home loan records to determine if the deceased borrower had home loan insurance. Now ask the bank if there was one. Mortgage credit insurance protects against the risk of default in the event of the premature death of the borrower. Due to this uncertainty, the insurance company will settle an outstanding mortgage amount with the lender for the life of the loan.

There are two main types of home loan insurance that lenders offer: a declining balance plan or a matching plan. In the case of declining balance insurance, the coverage and the outstanding balance of the loan decrease with the duration of the loan. With the regressive scheme, the insurance pays the unpaid contributions of the bank in the claim due to the death of the borrower.

With a level coverage plan, coverage remains the same throughout the life of the loan. Let’s say the deceased borrower had taken out one million rupee insurance on a home loan. If you have regularly repaid a Rs 50 lakh loan, the insurance company will reimburse Rs 50 lakh to the bank in the event of the borrower’s death. The insurance company will reimburse the remaining 50 lakh to the family of the borrower who obtained the loan.

Can the insurance company deny the claim?

Yes, an insurance company can deny the right to hide previous illnesses that violate the insurance contract. The insurance company takes care of mortgage loan insurance only in case of natural or accidental death of the borrower.

Construction loan insurance is expensive and therefore the lender includes the premium in the loan amount. Some people get a home loan with insurance (the premium is built into the EMI) and then switch to another bank for a cheaper home loan. The insurance policy you bought would not be transferred. In these cases, your insurance claim will also be denied.

The term of the policy is usually the same as that of the mortgage. However, if the loan term is extended due to an increase in interest rates, the insurance policy cannot fully cover the loan.

Therefore, if the borrower dies, the co-borrower must pay an additional amount.

Repayment without mortgage insurance

In the absence of mortgage insurance, the responsibility to repay the loan rests with the co-borrower. The bank will also contact the mortgage guarantor and legal heirs for repayment of the EMI loan. In the event of the borrower’s death, the bank can provide humanitarian assistance to facilitate the repayment process.

The bank would offer a term and flexibility for repayment. Contact the bank and request a loan restructuring, a 3-6 month moratorium, or a one-time settlement based on your cash flow. Another option is to assign the loan to other legal heirs who have stable income. The bank will be flexible and adjust the terms of the loan according to the repayment capacity of the new owner.

Can a lender take possession of the property?

Yes, the lender can take possession of the house under the SARFAESI law if the family or legal heirs cannot pay the current loan. The lender then sells the property at auction to collect the debt. However, taking possession of the asset is the bank’s final choice. The main activity of a lender is to lend, not to hold real estate auctions. The bank would seriously help the family to organize the payment.

Before taking possession of the property, the credit institutions give the co-borrowers and legal heirs sufficient time. The bank will not classify the borrower’s account as non-performing assets (NPA) until the mortgage amount is 90 days past due. The bank then requests the co-borrowers in writing to settle their debts within 60 days. In the absence of a response to it, or after 30 days after receiving an unsatisfactory account statement, the bank will proceed to the public sale of the asset.

The bank will publish another 30-day public notice detailing the details of the sale. He adds that if the family makes a payment within that period, they will have a short break to renegotiate the payment terms.

To protect your family against credit-related debts in the event of premature death, mortgage insurance is essential when taking out the loan. As with financial planning, reimbursement protection in the event of premature death is essential.



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