A home is a place where all your happiness is nestled in. Especially when that is your OWN HOUSE, the bond is just boundless. When you collect every penny you’ve saved to build your dreams, brick by brick, the dream home has to be in a protective shield. When you give the responsibility of handling that protective shield in the hands of a builder, everything depends on it.
In case of the occurrence of a mishappening where the builder goes bankrupt, your dream might be on the verge of shattering. But, hold it together. Taking a few steps could help you minimize or even eradicate the damages.
Take a part in handling the protective shield your home. Be aware and get insights on how to protect your investment.
You may or may not have faced the situation. But it is always better to know, better to be aware. And that awareness has to take place much ahead of the time of occurrence.
The Pre-insolvency scenario for
Before facing the scenario, taking a few precautions could help you sense the approaching case of bankruptcy and protect your investment no matter what happens.
Get things right.
Check every nook and corner of your agreement. Make sure your agreement has every detail to be agreed upon. This would help you in reaching out to the judicial system in the future. Important details such as the compensation amount in case of developer detraction, construction timelines, etc. must be included in the agreement.
Look into the payment plans. If you are facing a case where the builder charges an additional amount, beware! The actions might be fraudulent.
Keep track of advisory professionals. Go beyond the friends & family and seek out the professionals who could help you with buying homes.
Stay in Touch with your developer. Some developers, when they sense bankruptcy, might go entirely quiet. Do your payment on time and stay connected to them to have updates on the scenario.
Just a Reminder: Always raise your opinion in case of discrepancies. You have the consumer court to back you up!
The Insolvency scenario
With the unfortunate occurrence of bankruptcy, the case wouldn’t be entirely let down. The following attempts would be made.
- Builder’s assets would be sold to raise the funds and get the project completion successful.
- The takeover of the project would be attempted by the creditors to earn value appreciation.
- An insolvency resolution professional would come into the scene who could respond to a builder’s request.
The Role of IBC to Protect Your Investment
According to the Insolvency and Bankruptcy Code (IBC), after a defaulting builder’s properties are liquidated, the liquidation cost recovery must come with the proceeds. The payment of the employees involved, debts owed to banking and financial institutions and government dues, etc. are settled, followed by the amount due to the homebuyers. In most cases, where such funds are inadequate, the homebuyers being the last in the list are left deceived.
IBC has taken steps to alleviate the damages caused to the homebuyers. It ensures that the real estate projects facing insolvency register themselves under Real Estate Regulatory Authority (RERA) and deposit 70% of the amount in a separate escrow account for construction.
Where do YOU stand?
In the case of insolvency, primary creditors such as banks, etc. would be the first to receive the payments when the builder’s assets are liquidated. The homebuyers would ultimately be the last to receive the payments back, that too not completely.
The case could change when
- The homebuyers should be recognized as “financial creditors” and made a part of the “creditor’s committee” who are capable of strong claims.
- The investments of the homebuyers should be recognized as “security interest” as not all financial creditors are “secured creditors” according to the code.
These are primary to comprehend how to protect your investments.
What could YOU do to protect your investment?
At a point like this, every minute matters. And so does every detail. Be quick to act and get the supporting actions and documents ready so that your investment is properly secured, ON TIME!
- Use Form F issued by the Insolvency and Bankruptcy Board of India (IBBI) which would be in response to the amount invested in the project, damages due to non-execution of the agreement or even to get the possession of the property.
- Act as a group. When homebuyers rebel together to increase pressure on the developer, the voice would be stronger.
- Don’t refrain from paying the balances. Don’t stop paying EMIs for your home loans post insolvency. Buyers may be asked to pay the balance pending for their units, which will be used to complete the project.
- Don’t go beyond timelines. With an insolvency resolution professional involved, keep up with the timelines announced by them so that actions could be taken on time.
- Get the documents in place. When a buyer is raising claims as a creditor, some documents need to be submitted to the interim resolution professional as a proof of claim. The documents include
- Bank statements of the customer where the non-satisfaction of claim is clear
- Documents to demand satisfaction of the claim
- Court’s order that has adjudicated upon non-satisfaction of claim
Taking the above action could get the process on track, with the right evidence. With these, the key way to protect your investment is done, and you can stay away from any worry further.
The Government’s take to protect your investment
The statement that “The government is of the people, by the people and for the people” might sound cliché but is undeniably true. Our government has taken a step to protect the interest of homebuyers whose investments get uncertain at an event of Insolvency and Bankruptcy.
The step had two visions.
- Bring amendments to the bankruptcy law so that homebuyers do not suffer any loss when the debts are settled to the creditors.
- Bring changes to the law’s operational rules thereby elevating homebuyers to a new category of trustees, so that the investments are mandatorily protected.
Under the insolvency and bankruptcy code of 2016, the rights of promoters, vendors, banks, etc. are rebalanced.
With the amendment in Section 9 of the IBC, the homebuyers are made the secured creditors, along with banks and financial institutions, ensuring their safety when the debts are settled. This also helps home buyers to begin the resolution process even if bankruptcy is declared during the construction phase.
The entire process of building homes is similar to the building construction process itself, involving many small steps that are assembled to get the big picture. It is important to keep a track of everything coming this way.
So no matter what the case is if you are or are not affected by the situation, it is better to know.
Don’t restrict the knowledge to yourself. Share the knowledge. Share the blog on social media!
Let us know your thoughts on the blog in the comments section below.
AUTHOR PROFILE Akshaya Muralikumar is an avid architect turned writer who strives to explore the depth of details in the subjects across Construction, Architecture, Interior Design and Marketing. Being "An Architect of thoughts" she has been 'building' her thoughts across multiple web and print media.