One of the most common fears among borrowers is whether their residential house can be taken by banks under the SARFAESI Act, 2002. Many believe that residential properties enjoy blanket protection. In reality, the applicability of SARFAESI to residential houses depends on specific legal conditions, not on the nature of use alone.

This article explains when SARFAESI applies to residential houses, when it does not, and what remedies borrowers have.

Basic Rule: SARFAESI Can Apply to Residential Houses

Yes, SARFAESI is applicable to residential houses, provided:

• The house is offered as security for a loan, and

• The loan account is classified as a Non-Performing Asset (NPA)

👉 The Act does not exempt residential properties merely because they are used for living.

Why Residential Houses Are Covered Under SARFAESI

SARFAESI is concerned with:

• Security interest, not usage of property

If a borrower:

• Creates a mortgage over a residential house, and

• Defaults in repayment

The bank acquires a statutory right to enforce that security, regardless of whether the borrower resides there.

Common Situations Where SARFAESI Applies to Residential Houses

SARFAESI proceedings can be initiated against:

• Houses mortgaged for housing loans

• Residential houses given as collateral for business loans

• Houses mortgaged by guarantors

• Jointly owned residential houses (to the extent of borrower’s share)

Important Exception: Agricultural Residential Houses

SARFAESI does not apply to:

• Agricultural land, including farmhouses or residential structures forming part of agricultural land

Courts look at:

• Revenue records

• Nature of land classification

• Actual use

If the residential house is part of agricultural land, SARFAESI action is illegal.

Residential House vs “Home” – Legal Misconception

❌ Many borrowers believe:

“SARFAESI cannot be used against my home.”

✔ Legal position:
There is no concept of emotional or personal protection under SARFAESI. Once a residential house is mortgaged, it becomes a secured asset like any other.

Procedure Followed for Residential Houses

For residential houses, banks must strictly follow:

1. NPA classification

2. Section 13(2) demand notice (60 days)

3. Consideration of objections under Section 13(3A)

4. Possession under Section 13(4)

5. Magistrate assistance under Section 14 (for physical possession)

Any deviation renders the action challengeable before DRT.

Borrower’s Rights in Case of Residential House

Borrowers have the right to:

• Receive proper statutory notices

• File objections

• Continue occupation during symbolic possession

• Challenge possession and auction before DRT

• Redeem the property before auction

Can a Borrower Be Evicted from a Residential House Immediately?

No.

• Immediate eviction is not permitted

• Symbolic possession is usually taken first

• Physical possession requires Section 14 proceedings

Due process must be followed.

Special Considerations by Courts

Courts may show caution where:

• Minor defaults exist

• Procedural violations are evident

• Property is the only residential house

However, sympathy alone is not a legal defence.

Common Grounds to Challenge SARFAESI on Residential Houses

• No valid NPA classification

• Improper service of notice

• Agricultural land wrongly proceeded against

• Co-owner rights ignored

• Mechanical Section 14 order

Practical Advice for Homeowners

• Never assume your house is automatically protected

• Verify whether SARFAESI prerequisites are met

• Act immediately after receiving notice

• Do not wait until police-assisted possession

• Seek legal advice early

Conclusion

SARFAESI is applicable to residential houses if they are mortgaged as security, irrespective of personal use or emotional value. The law prioritises security interest over property usage. However, strict procedural safeguards exist, and illegal or premature action against residential houses can be successfully challenged before the DRT.

FAQs

Q. Can SARFAESI be used against my only residential house?

Yes, if it is mortgaged and SARFAESI conditions are met.

Q. Can banks evict families immediately?

No. Due process under SARFAESI must be followed.

Q. Is agricultural residential property protected?

Yes. Agricultural land is exempt from SARFAESI.