Home owners: Prevent repossession

For most people, owning a home is seen as a major achievement – it may represent years of hard work and sacrifice.

There is no doubt that property ownership forms part of a solid investment portfolio, so losing a home can be devastating, financially as well as emotionally.

“Every property that is repossessed is already one too many,” says Steven Barker, head of home loans at Standard Bank.

“Unfortunately, many home owners end up in a situation where they can no longer maintain their mortgage payments due to their financial position. Before buying a home, it’s advisable to do some research and construct a budget that caters for unforeseen expenses that may place your ability to repay your home loan at risk.”

He says many property owners who cannot meet their bond repayments make the mistake of not contacting their banks, and sometimes choose to ignore telephone calls, letters and emails from the bank.

“If you know that you can’t make the payments, you should immediately contact your bank,” he says.

“It is in the bank’s interest to help you to find a solution that is acceptable to both parties. No bank wants to repossess a home; if it is at all possible it will try to accommodate a financially stressed homeowner, as long as there is a viable solution and obligations are met. Consumers often tend to believe that if their house is repossessed, their financial worries will be over. However, there are some major risks associated with this course of action.”

When your home is repossessed, the bank is forced to cancel the home loan agreement and institute legal action against you. Once a judgment is obtained through the courts, the property is attached by the sheriff and sold at an auction as a ‘sale in execution’.

“Standard Bank does not seek to make profits out of a sale in execution,” says Barker. “We credit the ex-owner if there is a surplus from the sale, after deducting costs. If the proceeds of the sale are not sufficient to cover the outstanding loan balance, then the client still has an obligation to repay that outstanding amount to the bank.”

Tips for preventing repossession of your home:

Examine your budget carefully and cut debt levels. Sometimes giving your budget a makeover can free up enough cash to keep your payments on track. This process will require you to make changes to your lifestyle, such as limiting eating out, cell phone use and suspending subscriptions. Remind yourself that the cutbacks are short-term and that keeping your home is of utmost importance.

Sell the property before you fall into arrears. Waiting in the hope that your luck will turn could make matters worse. If you don’t want to sell your home, you may need to sell something else. Look around your house and see what assets you can sell to boost your funds.

Ask the bank to extend your mortgage payback period to 30 years. This will give you more cash in hand, but you will pay more interest. You could always change the mortgage repayment period back to 20 years once your situation has improved.

Speak to your accountant or financial adviser. They may be able to give you financial advice on how to use investments to tide you over. Although not ideal, cashing in an investment may be a viable solution. Financial advisers have experience with people who are in financial stress and may be able to suggest some feasible solutions.

“Remember, the bank will do everything in its power to help you to keep your home,” says Barker. “The key to an amicable solution is regular and open communication.”

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