The recent spate of insolvency cases against real estate development companies in the country has made housing finance companies apprehensive. Their anxiety is based on the fact that the Insolvency and Bankruptcy Code (IBC) does not consider housing financiers as secured lenders.
Experts clarify that home loans are usually considered secured loans as it is approved against an under-construction unit that acts as collateral. However, with regards to IBC implementation in case of a developer, home loans are treated as unsecured loans. This means that if the homebuyer halts EMI payments, the lender does not have any asset for recovering his money.
It must be noted that the IBC does not recognise homebuyers in an under-construction project as secured creditors of the developer declaring for insolvency. This means that buyers do not have any claim on the property that they had been paying for. As a result, the lending bank will have no right on the property mortgaged for the home loan once the developer’s liquidation commences.
Experts from the home loan industry comment that unless IBC is altered, it will kill the housing finance industry. They assert that it is important that home financiers' rights get recognised at par with secured lenders or else the industry would be significant hit.