Home loan repaid but lender didn’t return property papers? You can get ₹5,000/day compensation

Paying off the last EMI of a home loan does not mean the paperwork is over. The loan closure process is complete only when the original property documents are returned and the lender’s charge on the property is removed.

To prevent delays in this process, the Reserve Bank of India (RBI) has set a time-bound framework for lenders. The rule, applicable to cases from December 1, 2023, requires regulated entities such as banks and NBFCs to complete the loan closure formalities within 30 days of full repayment.

If the lender fails to meet this deadline, it can be liable to compensate the borrower for the delay, according to RBI’s September 13, 2023 directions.

What is RBI’s 30-day rule?

The RBI directions treat loan closure as more than just repayment of the outstanding amount. Once the loan is fully repaid, the lender must complete the following formalities within 30 days:

• Return original property or collateral documents to the borrower.
• Remove charges registered with the relevant registry,
• Allow the borrower to collect the documents from the servicing branch or another designated office.
• For applicable loans, specify the timeline and location for returning the documents in the sanction letter.

In practice, this structured process applies to every case where the loan is given to an individual, and the lender holds original property or collateral documents. For example, housing loans and loans against property.

What happens if the lender delays?

If the lender fails to return the original property documents or remove charges within 30 days of full repayment or settlement of the loan, it must pay the borrower a compensation of ₹5,000 for each day of delay. The lender must also inform the borrower of the reason for the delay.

“In case of delay in releasing of original movable/immovable property documents or failing to file charge satisfaction form with relevant registry beyond 30 days after full repayment/settlement of loan, the RE shall communicate to the borrower reasons for such delay. In case where the delay is attributable to the RE, it shall compensate the borrower at the rate of ₹5,000/- for each day of delay,” the RBI notification read.

What if property documents are lost or damaged?

If original documents are lost or damaged while in the lender’s custody, the RBI directions place clear responsibility on the lender. In such cases, the lender must take the following steps:

The central bank allows an additional time of 30 days to complete the above mentioned procedure, after which the delay compensation is calculated and paid to the borrower (i.e,. after a total period of 60 days).

How can borrowers escalate the delay?

If the lender does not meet the 30-day timeline, borrowers are advised to follow a structure approach to get relief. Here’s what they can do:

• Submit a written complaint to the lender
• Request written confirmation of loan closure
• Ask the lender to provide the reason for the delay.
• Escalate the issue through the lender’s grievance redressal mechanism
• Approach the RBI Ombudsman if the lender does not respond or the issue remains unresolved after an extended period.

Keeping a written record of the delay and preserving the original loan documents can help support your claim if you need to escalate the matter.