What is the importance of home insurance?

Property insurance, in general, is of various kinds, depending on the property in question and the specifics of the insurance policy. Since it is a very vast category of General Insurance, the type of cover that you need depends upon the type of property you are seeking to cover. You should get a home insurance policy to protect yourself from future losses caused by any damage to the property. Different kinds of policies are available in the market such as fire insurance, burglary insurance etc1.

It is important to thoroughly check the specific terms of the insurance policy and inquire about the same in the market, before finalizing it2.

  1. Consumer Education Website Insurance Regulatory and Development Authority of India. Accessed at: https://www.policyholder.gov.in/Why_Buy_Property_Insurance.aspx []

  2. List of IRDA approved Non-Life Insurers can be found here: https://www.policyholder.gov.in/registered_insurers_non_life.aspx []

How can immovable property be used to raise bank loans?

Land and housing are valuable assets, and as an owner, you can choose to seek a bank loan by using the property as a collateral. A ‘collateral’ is a valuable asset that a borrower offers as an assurance against which they can secure a loan. If you are unable to repay the money, you may lose ownership over the asset which you have offered as a collateral to the lender. For the lender, the collateral acts as a safety net.

When seeking a bank loan (business, education etc), especially when it is for a higher amount, banks require individuals to offer some asset as collateral for security. For this purpose, you can offer either self-occupied residential or commercial property. You will be required to provide proof of ownership in the form of title deeds at the time of registering for a loan. The banks decide the credibility and the value of the land / house being offered as a collateral against the requested amount for the loan. Generally, the chances of approval are high when using a land or housing property as collateral.

Can I get a bank loan to buy a property using the same property as the collateral?

Yes. You can get a loan from the bank to purchase an immovable property by using the same property as the collateral/security. This practice is widespread when people buy residential properties in India. Home loans are generally approved on the basis that the prospective home is the collateral. Such loans fall under the definition of mortgage loans1. Commonly, when someone seeks a mortgage from a bank, they bind themselves to pay the loan, without delivering the possession of the mortgaged property, and agree that if they fail to repay the amount, the bank has the right to claim the mortgaged property and use it to settle the loan. Such mortgaged properties claimed by the creditors are often sold off in auctions as  ‘foreclosed’2 or ‘distressed’ properties under the SARFAESI Act.

  1. Section 58 of the  Transfer of Property Act, 1882.[]
  2. Foreclosure of property is dealt with under Section 67 of the TP Act and also the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002[]

Can I purchase a foreclosed property?

When the mortgage borrower is unable or unwilling to pay their equated monthly instalments (EMIs) under the terms of the loan three times consecutively, the lender has a right to acquire that property and either sell or lease it out1. Such foreclosed properties are auctioned off by the lenders and a ‘reserve price’ is set i.e., the minimum amount the lender will accept as a winning bid for the property during an auction. Foreclosed properties are generally expected to be auctioned off at rates lower than their true market values. However, there are often concerns about the quality of such properties as the defaulters are often financially weakened, which would mean that the due repairs and general maintenance of the property are not undertaken regularly. While this is not the standard, it is important to conduct the requisite due diligence about the location, encumbrances and conditions of such property before investing.

Auctions of foreclosed properties can take place through offline or online modes, depending upon the Bank (lender). For an offline auction, prospective buyers should submit their bids with the requisite documents to the Bank before the date of the auction; and for the online mode, the buyers are expected to submit the requisite documents along with the bids online on the day of the auction itself2.

  1. https://www.livemint.com/Money/eGRMvQiYkQJbdaz5RG22vK/You-can-buy-foreclosed-property-online.html[]
  2. https://tealindia.in/insights/how-to-make-a-secure-foreclosed-property-purchase-in-thane-with-teal-check/[]