It is an unfortunate commentary, but when economic activity declines and housing activity decreases more real property enter the foreclosure process. High interest rates and creative financing arrangements also are contributing factors.
The real estate industry refers to these properties as “Distressed” and this would also include properties being sold as a result of a divorce, urgent Emigration or even death. When homeowners find themselves in these situations they often feel that there is no escape and they are trapped.
While the bulk of this article deals with financial pressure, we are through experience well equipped to assist you in a forced quick sale environment - no matter what the circumstances
YOU ARE NOT ALONE
The first step in any situation of a forced and urgent sale, is to realise that you are not alone. There are others who are and have gone through similar situations. Do not allow yourself to be overcome by embarrassment or shame because of your circumstances.
Your need to adopt a positive attitude and a four step approach ;
- Accept Responsibility
- Take control of the situation
- Consult broadly
- Act Decisively
If it is a quick sale you need, we are your best solution – but more than that, we understand.
UNDERSTANDING FORECLOSURES (REPOSSESSIONS) Top
When prices are rapidly accelerating during a real estate "bonanza", many people go to any lengths available to get into the market through investments in vacation homes, rental housing and "trading up" to more expensive properties. In some cases, they also take out second and third bond to make desired improvements. Many buyers anticipate that interest rates will drop and home prices will continue to escalate. Neither may occur, and borrowers may be faced with large payments becoming due. When payments cannot be met, the foreclosure process looms on the horizon.
In the foreclosure process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a respossession. Lenders are not in the business of selling real estate and will now even more so than before, often try to accommodate property owners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the owner's financial situation improves.
Let's say, however, that a property owner has missed payments and has not made any alternate arrangements with the lender. The bank has by now already sent out notices and a final notice. In this case, the lender may decide to begin the legal collection process. Under such circumstances, the lender, whether a bank, savings and loan or private party, will approach their lawyers to send you a summons to appear in court on the matter. This summons must be delivered by hand, by the sheriff of the court, to your physical address. You DO NOT have to receive it personally.
The lender under most circumstances, can require full payment on the entire outstanding loan, not only on the outstanding balance, as the only way to cure the default.
Once in court, the lender will request of the court to grant judgement that you the borrower be found guilty of non payment and that the property be repossessed. If you think the bank is being unreasonable, and that repossession is not the decision to take, you are entitled to appear in court, with or without legal representation and to state your case. Our new Credit Act is a lot more understanding of buyers and the magistrate may well judge in your favour, that repossession not be granted, if you have a strong enough case
EARLY ACTION CRITICAL Top
It is however critical, that any borrower, take action well before the matter reaches the courts. DO NOT think the problem will go away of you ignore it. Try and avoid at all costs, getting a blemish against your credit record - especially for a bond.
If you sincerely believe that you only have a short term problem and that you will be able to correct the situation in the short term, then communicate this to your lender. Preferably in writing and where possible, with evidence of how you will address the problem.
Foreclosures aren't just happening to people who over-leveraged themselves and got into risky loans. They are happening to homeowners who are getting divorced, facing health issues, needing to relocate for a job, have been retrenched, failed businesses and numerous other reasons. The bank, unless you inform them of your unique circumstances, will treat you as just another non-payer.
Regardless of how you may end up falling behind on your mortgage, knowing what to do next is critically important.
DO’s AND DON’Ts WHEN IN ARREARS Top
Do not contact your lender first.
A lot of the news media are talking about the first thing you need to do is contact your lender. However, if homeowners who are facing foreclosures contact their lender first, the first person they interact with is the customer service agent, who may threaten them and tell them 'We're going to foreclose on your home right away' and scare them into not taking action.
If they get to a loan mitigation person and they are talking to them, they may agree to a workout that they cannot afford just to get the phone calls to stop. However, if they agree to a workout they cannot afford and they miss a payment, the homeowners have essentially lied to their bank. And that's not something good, as well as providing them with ammunition in court.
Do not panic about your financial circumstances
People need to back up, really stop panicking. They need to look at their finances realistically, look at their income, look at their expenses, and any liquid cash and prepare a proper budget looking forward. This is also the time to brutally assess what expenses can be cut. You will not get sympathy for not paying your bond, while you still have for instance an active Golf Club subscription and DSTV running.
Once you have honestly assesses your situation and know exactly what you can offer, with certainty, then call your lender with that information so that they can work out something that's really going to help you and not break you totally
What to say to lenders
If you have gone through the steps of understanding what your deadlines are and then facing your finances and you still see that you're short, that's where you do need to communicate with your lender and say, 'I need to work out some other agreement with you because right now I don't have it.'"
How receptive are lenders when homeowners say they can't pay their bond?
Times have changed and banks have generally awoken to the reality of economic swings and therefore circumstances. What people are finding is that lenders are willing to work with them. It will take a whole lot of persistence on the part of homeowners. They really need to make sure that they're not intimidated by the conversation they need to have with their lender. But they need to step up and say, 'I am not going to be able to make this. What can we do to suspend the payment, lessen the payment or modify the payment until I get back on my feet?'
Many banks have quick sale options, where you commit to selling your property as quickly as possible and settling them. They will then suspend all legal action, as well as assist in varying degrees on costs etc. As mentioned previously, they do not want to become property owners – they would much rather stick to their business of lending money and getting payment.
ALTERNATIVE ARRANGEMENTS Top
There are a whole lot of implications to your various options and we will be happy to provide you with further assistance on these if you require it, but they are briefly as follows ;
Alternate Payment Arrangements. Banks, depending on your current situation, can offer a few options.
A payment grace period might be allowed for instance, where you do not have to make payments for say three months. Or a reduced payment for 6 months and then increased payments again to catch up.
If your original bond was R500 000 this would give you a payment of around R5000 per month. Lets say you now only owe R100 000. The bank might then grant you a new bond of R100 000 and cancel the old, leaving you with new instalment of only R1000.
Remember that communication is important. Be honest with yourself and honest with the bank.
Opt for your Bank's Urgent Sale Option. All the major banks now offer special concessions to clients who face financial difficulties. The benefits vary from bank to bank but essentially they are as follows :
- The bank will write off a certain portion of your debt if sold below the amount outstanding. Normally 10%. This means that If you still owe R100 000 for instance on your bank account you could sell it for R90 000 and have no balance outstanding - and no judgement record agaist your name.
- As soon as you enter the Urgent Sale agreement, all legal proceedings are ceased against you
- The bank offers 100% to approved purchasers - making it easier to find a buyer.
- The bank will offer the buyer up to 50% discount on transfer and bond costs
- Any amounts still outstanding after the sale can be paid off over up to ten years - interest free.
If you would like to know more about the different options available why not contact us today.
Go under Debt Review. A Professional Debt Counsellor will review your situation with you, submit a proposed payment plan to all creditors and apply to court to have this proposal granted. Once you have applied for this process, all creditors must cease legal proceedings against you and participate in this process. The bank also cannot repossess your house and must accept the payment offer ruled by the court. This is obviously the first choice for the homeowner experiencing current difficulty and selling is really a bad option.
Go under Administration. The process is very similar to that of debt review, but is viewed as a more permanent measure. Debt Review assumes you are in a temporary crisis and that you can get out of the situation. Administration however assumes that the situation will not be remedied in the short term, makes longer term settlement arrangements with your creditors. Your property, will however be repossessed to attempt to settle the debt. You also, cannot incur any new debt while under administration and will not be able to purchase a home for some years after
Voluntary Liquidation. This is the last choice step you would take, if there simply is no light at the end of the tunnel. You are so far into debt, you will never be able to recover. All your assets are taken, and all your debt written off. In other words, you are bankrupt. Bear in mind that if you apply for voluntary liquidation, your creditors can appeal against it on the grounds that you could pay the debt off over time. Remember that bankruptcy leaves a big black mark on your name and you cannot enter into debt for many years thereafter.
CREATIVE SOLUTIONS Top
Homeowners should also look for other sources of money. Think outside the box to help come up with money - be creative!
A lot of people are taking in boarders and renting out rooms. Some people are renting out their entire house and they are staying with family so that they can make the mortgage payment. These are all things that homeowners need to do - think a little bit outside the box when it comes to a solution.
There are plenty of other alternatives, and people just need to look for them and apply them as quickly as possible. That hobby you have, could be an opportunity to make money by selling the products at a beachfront stall. Are there any part time jobs available?
Looking for solutions to an emotionally and financially draining situation such as a foreclosure is fatiguing and frustrating. However, if you realize there are options, you can begin to build momentum to rectify your situation. Rather than focus on the downside, accept the challenge and make it exciting.
IN CLOSING Top
Ultimately, it's critical to consult with experts on this matter, to be open about your financial dilemma, and to seek help immediately. We can, with CDPE agent experience, work alongside you and your bank to look at sale options, if necessary, or rent it out to help you pay your mortgage. We can also provide basic advice on what solutions your bank offers, other alternatives or refer you to professional assistance.
Many times we have been able to work together with a client in finding solutions - which meant they did not have to sell their home, holding on to their largst asset. Sometimes even just long enough to let a sale take price without pressure, which helps in obtaining full market value.
Please always be honest with your agent regarding the situation. With the correct facts in hand, we can provide you with the best advice and plan of action.
Trying to do it alone can be a painfully disastrous experience - seek the help you need and feel free to contact us
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Read more on Voetstoots under our Legal Section
Read more on Open Mandates or MLS Mandates
Read more on Voetstoots under our Legal Section
Read more on Open Mandates or MLS Mandates
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