How to Challenge Valuation for Home When Borrower Lost Job

Job loss can transform a home loan that was once affordable into a home distress in a matter of months. EMIs are missed, savings are diverted to daily expenses, recovery calls mount and soon enough the borrower finds a SARFAESI notice on their doorsteps. It turns into a nightmare when the bank subsequently issues a notice to auction away the family home at a reserve price that seems significantly lower than its practical worth.

A borrower has the right to dispute home loans valuation under SARFAESI if they have legitimate reason to believe that the secured creditor has not complied with statutory valuation and sale procedures. Being rendered unemployed does not in of itself render the bank’s valuation unlawful. The bigger issue is whether the property was valued by a certified valuer, whether the reserve price was determined correctly and whether the proposed sale was being conducted in accordance with provisions of SARFAESI Act and Security Interest (Enforcement) Rules, 2002. Rule 8(5) mandatorily requires valuation to be done by an approved valuer prior to sale of immovable secured asset and fixes the reserve price to be determined in ‘consultation’ with the secured creditor.

It matters for a borrower struggling to make payments after losing a job. Financial distress may bolster a borrower’s case for restructuring, moratorium or a negotiated settlement but financial distress is not in and of itself a legal defense against recovery actions.

BK Singh Advocate have encountered numerous families who wait until they receive an auction notice to reach out for help. By this time, the matter may raise two independent issues; whether the borrower is actually capable of rehabilitating the overdue loan and whether the lender followed lawful procedure in the enforcement action including the valuation of property.

Why a Low Home Value Becomes More Serious If You Lose Your Job

Offering a lower value for your house can cause legal problems separate from regular EMI default. Selling your home at much less than what you think it's worth can mean losing an asset even if the loan isn't fully wiped out.

After the statutory demand stage, Section 13(4) of SARFAESI empowers the secured creditor to take possession of the secured assets and eventually sell/transfers the secured asset to recover the dues. The Act also provides for recovery of any shortfall if the proceeds of the sale are insufficient to discharge the secured debt.

That is also why you should not think, “The bank is taking my house, so my loan will be settled.” Especially when you lose your job.

If you lose your job, you suddenly have even less capacity to pay off your dues while the recovery timeline progresses.

Home loan borrowers in Delhi, Noida, Ghaziabad, Gurugram, Faridabad, Greater Noida, Mumbai, Pune, Bengaluru, Hyderabad and other cities may find huge variances between online listings prices, circle rate, the price you paid for your home and the valuation amount from a professional. Merely disagreeing with the lender’s valuation is not proof of any illegality. Documentation proving a fraudulent valuation or statutory non-compliance matters more than simply stating that your home is “worth much more” than they claim.

Advocate BK Singh also typically views valuation disputes and inability to repay as two separate but related issues: One deals with the procedure of enforcement, and the other deals with the borrower’s capacity to pay and potential repayment terms.

Home loan borrowers who are already getting notice for possession or auction action may also find this article on home loan default and auction stop useful.

Quick Facts 

• Loss of job does not by itself set aside auction by bank/private valuer.
• Rule 8(5) mandates a secured immovable property to be valued by an approved valuer before its sale and further requires fixation of reserve price.
• Contents of sale notice must include the reserve price fixed, along with other material particulars of sale provided under Rule 8.
• Section 13(2) provides a general right to the borrower to repay the amount specified in demand notice within 60 days of service of notice before action under Section 13(4) can be initiated.
• The borrower aggrieved by any action under Section 13(4) has recourse to Debt Recovery Tribunal under Section 17 within the statutory limitation period of 45 days.
• DRT would look into whether the mode of enforcement adopted by the creditor is as per SARFAESI Act and rules.
• These are different issues altogether. Settlement/restructuring/ revaluation cannot be demanded as of right simply because the borrower is jobless.

Evidence which can be used to substantiate valuation objection?

If you have any evidence to back your objection to valuation rather than just take it up emotionally.

Helpful Documents are: 

• Notice of possession & auction/sale notice by bank 
• Reserve asked by authorised officer. 
• Copy of valuation report if provided, else correspondence asking for details related to valuation.
• Loan sanction letter, sanction documents and mortgage deed.
• Sale deed of property and previous sale documentation(if any).
• Approved or actual Built-up area(if misstated) 
• Recent transactions of nearby genuine Sale through credible agents of similar properties.
• Fair market valuation by independent professional quoting about the properties attributes and how the property is valued.
• Photographs which clearly depict construction quality, accessibility, upgrades or features left out in loan statement description
• Resignation/Layoff/income proof(if claiming retrenchment/layoff) to show loss of income due to corporate restructuring/settlement. Claiming loan repayment issues due to financial difficulty along with this.
• Bank statements indicating previous history of repayment and current account balance.

Do look out for property listings over the internet. Asking price is not always sale figure. 

BK Singh might also help you differentiate between documents which are supporting your claim of undervaluation vs. documents which are showing your inability to pay. Borrowers tend to send both at times which confuses the matter.

When Should a Borrower Seek Legal Help? 

Legal intervention can be contemplated at a later stage also if the property is already in possession proceedings/auction notice received/reserve price is way below an arm’s length valuation with critical aspects of the property missing from such valuation/auction is imminent.

One common area of concern which can indicate delay is uncertainty with timelines.

BK Singh may also be approached where the borrower recently became unemployed but is expecting new employment/lump sum retrenchment compensation/proceeds from sale of another asset/financial support from relatives which could be leveraged towards a viable repayment plan.

This does not automatically entitle them to a settlement. But can significantly influence settlement discussions with the bank.

Delaying until the auction has too far reached can limit your realistic options. BK Singh can ascertain if the urgent concern is connected to valuation/SARFAESI compliance/DRT applications/repayment planning or some other combination.