Home buyers likely to get some relief from bankruptcy shock

Home buyers may be spared the agony in insolvency cases where they have bought and occupied a house without completing the necessary paperwork, a person aware of the development said.

- Gireesh Chandra Prasad

Currently, such houses are considered part of the builder’s inventory and hence open to resolution under the Insolvency and Bankruptcy Code (IBC).

The government is planning a special carveout within IBC to exclude such homes, the person cited above said on the condition of anonymity. In some cases, customers got possession but not occupation certificates, as the developer failed to pay the local authority for the land.

The change would prevent situations where a home buyer who has taken possession of the house and has been living there for years faces questions about his eligibility for the full value of the house while other creditors have to take a haircut as part of debt resolution of the builder because that house is still deemed to be the builder’s inventory, the person cited above said. “In the real estate sector, land value is huge, and the payment period for the builder is long. If timely payment is not made by the builder, approvals could get delayed,” the person added.