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Last month, the took over a housing project in Kolkata because the developer had defaulted on repayment of dues to the tune of Rs 176 crore. The Teen Kanya project was promoted by the Bengal Shelter Housing Development, a joint venture in which the state housing board has 49% stake. Therefore, its repossession by the has come as a shock for the 400-odd families that have invested in the project.
Most of the buyers had put money in the project because the state housing board was involved. The project is only half complete and the investors are now contemplating legal action to safeguard their investments.
The incident brings into focus the RBI's decision to stop builders from offering 80:20 schemes. Under these schemes, the buyer services only 20% of the loan for the property while the developer pays the interest on the balance till the property is ready. The RBI warned that if the developer defaults on the interest payment, the buyer would suffer because the loan was in his name.
What are the options available to a buyer if a lender repossesses a property due to default in payment? Legal experts and housing professionals contend that the lender does have first right over the project. Let us look at the issues involved.
When can a lender take over a project?
When they take a loan, developers need to provide personal or corporate guarantee and other securities. These securities are called "mortgage to lender". In case of real estate developers, the security is the property being developed.
"If a developer defaults on repaying the instalments towards principal or interest and the guarantor also fails to fulfill his commitment, the bank has every right to take over the project from the developer," says Shobhit Agarwal, managing director, Capital Markets, Jones Lang LaSalle India.
Read more here: What happens if a lender takes over a housing project? - The Economic Times
Most of the buyers had put money in the project because the state housing board was involved. The project is only half complete and the investors are now contemplating legal action to safeguard their investments.
The incident brings into focus the RBI's decision to stop builders from offering 80:20 schemes. Under these schemes, the buyer services only 20% of the loan for the property while the developer pays the interest on the balance till the property is ready. The RBI warned that if the developer defaults on the interest payment, the buyer would suffer because the loan was in his name.
What are the options available to a buyer if a lender repossesses a property due to default in payment? Legal experts and housing professionals contend that the lender does have first right over the project. Let us look at the issues involved.
When can a lender take over a project?
When they take a loan, developers need to provide personal or corporate guarantee and other securities. These securities are called "mortgage to lender". In case of real estate developers, the security is the property being developed.
"If a developer defaults on repaying the instalments towards principal or interest and the guarantor also fails to fulfill his commitment, the bank has every right to take over the project from the developer," says Shobhit Agarwal, managing director, Capital Markets, Jones Lang LaSalle India.
Read more here: What happens if a lender takes over a housing project? - The Economic Times
