Govt mulls giving banks powers to take over mortgaged houses 90 days after default

The federal government has decided to give commercial banks powers to take possession of mortgaged homes in cases of loan default after a notice period of 90 day.

The proposed changes are part of amendments to the “Financial Institutions (Recovery of Finances) Ordinance, 2001”, which are currently being examined by the National Assembly’s Standing Committee on Finance and Revenue.

Under the proposed foreclosure mechanism, a bank would be allowed to issue three separate notices of 30 days each to a customer who fails to pay mortgage instalments. The notices would require the borrower to clear the outstanding amount.

According to the draft law, if the borrower still does not make payment after the third and final notice, the financial institution would be authorised to move ahead with the sale of the mortgaged property, provided all notices had been properly served to the mortgagor.

The draft states that action could be taken if the borrower continued to default on the full mortgage amount or any portion of it even after receiving the final notice.

The issue came under discussion during a meeting of the National Assembly Standing Committee on Finance and Revenue held in Islamabad on Thursday. The session was chaired by former finance minister Syed Naveed Qamar.

During the meeting, committee members voiced strong concerns over what they described as harsh provisions that appeared to heavily favour banks at the expense of borrowers.

In a statement issued after the meeting, the committee said members had raised concerns that some clauses in the proposed law could hand excessive authority to banks in foreclosure matters.

Lawmakers stressed that although a stronger legal framework was needed to encourage mortgage financing and protect lending institutions, borrowers should also be given proper legal safeguards and protection against arbitrary or unjust action.

Following detailed discussion, the committee decided to defer the bill until its next meeting.