Home Loan Update: Taking out a loan has become commonplace these days. Before granting a loan, banks or financial institutions verify your income, credit score, and repayment capacity. However, the question often arises: what happens to the outstanding loan if the borrower dies unexpectedly, and what actions can the bank take?
Who Does the Bank Contact First After a Death?
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After the borrower’s death, the bank doesn’t immediately seize the house or property from the family. First, the bank contacts the co-applicant on the loan. Most home loans and joint loans include a co-applicant, who also shares the responsibility for repayment.
What is the Role of the Guarantor?
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If the co-applicant is unable to pay the EMIs, the bank contacts the guarantor. The guarantor has agreed in the loan documents to repay the loan amount if needed. In such a case, the bank can ask the guarantor to pay the outstanding amount.
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When Does the Bank Contact Legal Heirs?
If both the co-applicant and the guarantor are unable to repay the loan, the bank contacts the deceased’s legal heirs, such as the spouse, children, or parents. However, under the law, heirs are not directly obligated to repay the debt.
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When Can Property Be Seized?
When neither the co-applicant, the guarantor, nor the legal heirs make or can make payments, the bank has the right to seize the property. In the case of a home loan, the house, in the case of an auto loan, the vehicle, and in the case of other loans, the deceased’s assets can be auctioned off.
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The Bank Doesn’t Seize Property Immediately
The bank doesn’t immediately seize the house or property. A notice is sent first, and time is given for payment. Only after completing the legal process and exhausting all other options, and if payment is still not received, does the bank seize and auction the property. The proceeds from the auction are used to repay the loan, and any remaining amount is returned to the heirs.
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Benefits of Loan Protection Insurance
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If the borrower had taken out loan protection insurance at the time of taking the loan, the situation changed completely. In such cases, after the borrower’s death, the insurance company pays off the entire outstanding loan. This relieves the family of the burden of EMI payments, and the bank does not need to seize the property.
What the Law Says
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According to the law, if an heir does not accept the deceased’s property, they are not responsible for repaying the debt. However, if the heir has transferred the house or other property into their name, then they become responsible for repaying the loan up to the value of that property.