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Definition of Customer Default:
An intuitive definition of default for a home loan buyer may refer to his inability to pay his EMI on time. However, as simple as the definition may sound, in reality, the loan agreement may specify several other grounds that may tantamount to customer default and give a right to the lender to terminate the loan immediately.
Such grounds may include
- Death of the borrower.
- Change in employment status or resignation from current job; or borrower not informing the bank about change in his employment status/ job
- Divorce of the borrower, in case there are more than a single borrower and the spouse is a co-applicant
- Borrower getting involved in civil litigation or a criminal offense
- Borrower not paying statutory dues such as house tax, society charges, and bills or making unauthorized alterations to the property
- Default by the borrower on any other loan/facility provided to him by the same bank or other lenders (known as cross-default)
- Inability to provide additional security if the price of the mortgaged property falls
- Borrower leaving India or staying out of India for an extended period even on work or business without fully repaying the loan
- A borrower using the property for a use other than that informed to the bank; not informing the bank about giving the premises on lease or rent or leave and license
- Borrower creating a third party interest in the property by way of sale, exchange, partition, mortgage, charge, encumber or lease
While most of these clauses are in the nature of protecting the bank’s charge over the property, it is highly imperative that the borrower understands the wider definition of default and takes due care in meeting these conditions to avoid being categorized as a defaulter. In case, as a borrower, you are uncomfortable with any of the above clauses, timely discussion and negotiation with the bank for necessary modification before signing the agreement can save you unexpected turmoil in the future.