Indian real estate buyers are witnessing lots of confusion regarding the recovery of their money lying withbuilders, adding more atrocity to situation now the builders don’t have money to pay back, the projects are stucked in middle or with no development.

Arrival of new RERA law, adding hopes in the life of home buyers for recovering their hard earn money from builders, but the things hasn’t really worked out in its full since the RERA orders moreover remain on papers at this nascent stage of RERA Law.

There is lots of confusion among home buyers regarding the recovery of money especially when the Big groups like Jaypee, Amrapali or other groups has expressed their inability to payback debts and filed insolvency.

Here is technical reason why the home buyers are unsecured  creditors-

For this first you need to understand the definition of security interest
“security interest” means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee.

The definition of security interest do not includes the contract of performance guarantee.

When homebuyer books flat with builder , builder buyer agreement is signed between builder and buyer , where builder undertakes to deliver the apartment which simply means he is undertaking to deliver the apartment proposed to sell after construction, there is no element of any mortgage or any other sought of security interest, but merely a performance guarantee.

How homebuyers can become secured creditors: Possible for New Home buyer?

There is no way for existing home buyers to become secured creditors but for new home buyers there could be some way to become secured creditor by the way of drafting agreement with the builder in such a way that in case of default builder’s any of asset is pledged with the homebuyer. Practically I haven’t seen any such case till date but it’s possible.

To develop more understanding on the subject you may read our other blogs on Insolvency and bankruptcy code.

Disclaimer:-This article is for the general information and awareness of its readers, In-case of any legal matter in relation with readers, they are expected to have legal opinion before placing reliance on it. Further it contains completely author’s views on the subject and completely unbiased based on authors own experience, study and understanding.

About Author:- Rajul Jain (CA, MCOM, LLB, MBA, CNPO, CPFA, NCFM) is Chartered Accountant and Legal Consultant, academically he is highly qualified and have gone through various certifications. He extensively speaks and writes on finance, taxation and legal matters. The author can be reached at:- [email protected]