Foreclosure process in India & US
major difference in the forecloseure procedure of Indian Banks and US Banks, which limit the foreclosure in India. In US, banks issue loans with the property as a mortgage. And the loan is non recourse in nature. So the banks has the power to collect the dues only from the mortgaged property and not from the borrower. So for example, home buyer has taken a loan worth $2mln for the house that was worth $2.1mln at the time of issuance. Now suppose the outstanding amount is $1.8mln where as worth of the underlying house has been decreased to $1.6mln. So if the home owner does not pay the dues, bank will foreclose the property and sell it for $1.6mln. US Banks can not ask the borrower to pay the difference of $0.2mln.
Where as in India, loans are recoursable. So, in above example, An Indian borrower is required to pay the difference of $0.2mln to bank.
When loan is non recourse, it makes a sense for the buyer not to pay the due of $1.8mln and foreclose the property and buy the similar property in $1.6mln. This option is not available to Indian Buyer.
So, the likelihood of foreclosure is reduced in India.
Another reason being, Indian consumer doesn’t use house equity to finance his other purchases as it was the case in US. Which will limit the vicious cycle of correction in other sectors of Indian Economy.
Where as in India, loans are recoursable. So, in above example, An Indian borrower is required to pay the difference of $0.2mln to bank.
When loan is non recourse, it makes a sense for the buyer not to pay the due of $1.8mln and foreclose the property and buy the similar property in $1.6mln. This option is not available to Indian Buyer.
So, the likelihood of foreclosure is reduced in India.
Another reason being, Indian consumer doesn’t use house equity to finance his other purchases as it was the case in US. Which will limit the vicious cycle of correction in other sectors of Indian Economy.
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