Know All About the Home Loan Foreclosure Procedure

Foreclosing a Home Loan often amounts to a lot of relief. The process of Home Loan foreclosure is very simple. The effort of applying for a Home Loan, making a down payment, and paying EMIs each month — bears the most pleasurable fruit when you have full ownership of the house.

While you celebrate the achievements of owning a property, you need to complete certain tasks that have a direct effect on the credit score as well as the property records. Being diligent on this front will relieve you of hassles at the time of property transfer or sale. When embarking on the Home Loan foreclosure process, you should keep the following in mind.  

Home Loan Foreclosure Checklist

A housing loan account is considered closed when the lending institution declares the same from its end. The following are certain formalities that need to be completed once you decide to close your Home Loan account:  

1. Collect Original Documents

When applying for a housing loan from any institution, a borrower has to submit all the original documents to the financial lender, keeping only the photocopies with themselves. When it is time to foreclose the loan, ask the lender to return the original documents. Here is the list of documents that you should collect from your lender: 

• Title and Sale Deed
• Power of Attorney
• Possession Letter
• Home loan Agreement
• Payment Receipts

In case you haven't received any of the submitted documents from the lending institution, you can inform your lender.  

2. Get the Lien on the Property Terminated

A lien permits the lender rights on a property unless the borrower clears the debt and restricts the selling of the property. The lenders place a lien against the property to recover the loan amount if a borrower fails to repay it. 

Therefore, after you have ended up paying all EMIs and closed your Home Loan account, it’s imperative to get the lien removed to enjoy 100% ownership of the property and to be able to sell in the future without any inconvenience. To get the lien terminated, you’ll be required to visit the registrar’s office and the lender’s representative. 

​Additional Read: Home Loan Terminologies You Must be Aware Of 

3. Get the ‘No Dues’ Certificate (NDC)

Also, known as the No Objection Certificate (NOC), an NDC is one of the mandatory documents you must obtain from your Home Loan lender as soon as you are done making the final payment on the loan. An NDC also indicates that you have successfully paid all EMIs to your lender and that there are no more outstanding dues from your end. Hence, the lending institution no longer has authority over the property. 

The NOC must possess details, such as the borrower’s name, loan amount, property’s address, loan account number, and the start date and close date of the Home Loan account. Also, it’s advisable to keep NOC photocopies so that you can enjoy seamless dealings with other lenders soon.   

4. Ask for the Updated Non-Encumbrance Certificate

Once you’ve paid the whole loan amount as part of the home loan foreclosure procedure and have also removed the lien from the property, visit the Registrar’s Office and then apply for a fresh Non-Encumbrance Certificate. It’s a legal document that contains detailed records of financial transactions being carried out related to the property.  

5. Collect the Security Cheque

In case you’ve submitted a post-dated security cheque to your lending institution, ensure that you collect it back when the Home Loan foreclosure procedure is complete. 

6. Check if Your Credit Score is Updated in the Latest Report

A desirable credit score (750 or above) plays an important role in obtaining a loan (both unsecured and secured) at favourable terms. Therefore, as you pay the final EMI of your housing loan, you need to ensure that your lender updates the information to the credit bureau. It's worth noting that timely loan foreclosure can positively impact your credit score and overall credit history, while delaying or defaulting on payments can have a negative effect on your CIBIL score, potentially making it harder for you to secure loans in the future. 

Also Read: Tips to Maintain Your Business CIBIL Score Above 700

The updated credit score takes about a month to reflect in the credit history. You may follow up with the lender to update the information. Also, in case a wrong information has been reported, get that rectified as soon as possible.

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