Q: My brother unfortunately succumbed to Covid-19 last month leaving behind his wife and a daughter. He took a 15-year-tenure home loan in 2016 with his wife as a co-applicant. Now, with the unfortunate turn of events, we’re scared the bank would auction the property off. Can you please suggest how do we go about things to avoid this? Amit Kapoor
Ans: Firstly, I’m extremely sorry for your loss and would like to offer my deepest condolences to the grieving family. I totally understand your concerns but would like to tell you that although the lending bank does possess the right to auction the property if the dues are not repaid, they would consider this only as a last-resort option (it’s an undesirable and expensive affair even for them) and they would first focus on how to recover the dues.
The first thing you need to do is to reach out to your bank informing them about the tragedy. Since you mentioned your sister-in-law is the loan co-applicant, the bank is now likely to transfer the loan to her name. She could request the bank to restructure the terms of the loan, especially when the RBI has also recently announced a restructuring option for eligible borrowers struggling to repay their loans due to the second wave of the Covid-10 pandemic. The bank could offer an EMI moratorium or extend the loan tenure to reduce the EMI amount according to their policies. These steps could make the loan repayment easier for your sister-in-law.
You can also check whether your brother purchased any home loan insurance plan while applying for the loan. If so, the insurer could repay the balance dues through the policy to the lender and the possibility of the property getting auctioned would be nullified permanently.
If that’s not the case, you should check whether your brother had any term life or endowment plans in his name. His life insurance policy payouts could be used to clear the remaining dues. However, that might also disrupt his family’s other financial requirements but at least this issue could be resolved if the sum assured of his life plans could accommodate the home loan dues. The other options to consider to raise funds to clear the home loan could include his provident fund and investments like fixed deposits, mutual funds, small savings schemes, etc.
The point being, when a borrower dies, the onus to repay the remaining dues fall on the co-applicants, guarantors or legal heirs. If your sister-in-law is an earning member, she could consider repaying the loan under restructured terms so that her husband’s insurance payouts and investment returns are used towards taking care of immediate expenses and strengthening the family’s financial future. That being said, a home loan insurance policy would be the best option to clear the dues if that’s available, followed by a term life insurance plan. But it’s extremely important to talk to the bank regarding this so that they could offer all the options to avert the possibility of a property auction.
Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil. The writer is CEO, BankBazaar.com, an online marketplace for loans and credit cards.