The Senate of Pakistan has approved the Financial Institutions (Recovery of Finances) Amendment Bill 2026, introducing a major overhaul in how banks recover defaulted housing loans.

Under the revised framework, borrowers who fail to repay housing finance will receive three formal notices, each spaced 30 days apart. If the outstanding dues remain unpaid after the final notice, banks will be authorized to directly auction the mortgaged property to recover their money.

A key change in the law is the removal of mandatory court approval before initiating property auctions. This means financial institutions will no longer need prior judicial permission once the notice process is completed.

However, the law also introduces structured safeguards for borrowers. Banks must respond to any request for loan restructuring or settlement within 30 days, giving defaulters a formal opportunity to negotiate repayment terms.

Once an auction is announced, it cannot take place earlier than 15 business days after the public notice. Financial institutions are also allowed to participate in the bidding process themselves, while borrowers are given a final right to match the highest bid within five business days.

For enforcement, the amendment empowers banks to request assistance from deputy commissioners, who will be required to take possession of the property and hand it over to the relevant financial institution when needed.

Additionally, banking courts will face stricter limits on interference, as they will no longer be able to issue injunctions against recovery proceedings without first hearing the bank’s position.

The new law will take effect after presidential assent and is aimed at strengthening Pakistan’s housing finance system by speeding up recoveries and reducing long-standing legal delays that have discouraged mortgage lending.