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How to handle financial distress

The reality is that while economic conditions have improved and the property market is currently experiencing an uptick in activity, many homeowners are still facing tough financial situations due to high levels of debt and the rising cost of living, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
 
While some homeowners may just need to relook their current circumstances and make some financial adjustments to order to rectify the situation, others may find themselves in far more dire situations. “Often there is a lot of stress and sometimes shame surrounding the topic of financial distress, which makes homeowners less inclined to seek help or talk about the situation they are in. However, what homeowners should do is take immediate action and proceed with the necessary steps to rectify the matter as soon as possible in order to ensure the best conceivable outcome. Homeowners in financial difficulty should take control of the situation, consult with people who can help and act decisively,” advises Goslett.
Goslett offers homeowners advice on how to handle this often complex situation:
 
Assess your circumstances

According to Goslett, the first step is for homeowners to look at their current financial situation and determine whether they are able to continue paying their bond or not.  “If the answer is no, the worst thing that a homeowner can do is nothing. It is important that they notify the lender of their circumstances sooner rather than later,” he says. “While the thought of bank repossession can be somewhat traumatic, it shouldn’t make homeowners avoid dealing with the situation and defaulting on their payment without notifying the lender. If the situation is left to run its course, it will not only result in the homeowner losing their property, it will also lead to a tarnished credit record and black listing.”
 
Goslett notes that a blacklisting will result in the consumer being unable to obtain any credit for the next five to 10 years. This means that even renting a property will become difficult due to the fact that most landlords do credit checks on their potential tenants.
 
Communicate

Often banks may be able to assist the homeowner with their situation by rescheduling debt or offering some advice on the right steps to take, however this can only be done if the bank is aware that homeowner is in need of help. “Distressed homeowners need to contact their bank as soon as they know they are in trouble. What many homeowners may not realise is that the bank wants them to keep their property and will try to assist where possible.  Some banks may be willing to renegotiate the term of the loan from 20 years to 30 years, which will decrease the amount of the monthly bond instalment. They could also offer a holiday period on the instalments of between three to six months, giving the homeowner a chance to sort out some of their finances,” says Goslett. “The fact of the matter is if distressed homeowners don’t communicate with their bank about their situation, they won’t know what kind of solution the bank could offer.”  
 
Consult with a professional

In instances where the debt burden is beyond what the homeowner can handle by themselves, it is advisable that they consult with a professional who can provide guidance. Goslett says that a professional debt counsellor can help the homeowner to review their finances and submit a proposed repayment plan to the relevant creditors. An application will be made in court to have the proposal granted and creditors will be unable to proceed with legal action, and the bank will not be able to repossess the property. If the situation is of a more permanent nature, the homeowner can opt to be placed under administration rather than debt review; however in this case the property can be repossessed to order to mitigate the debt.
 
Sell the distressed property

Goslett says that if the homeowners financial situation is dire and it looks as though they won’t see much of an improvement in the long term, the best option is for the homeowner to consult with a real estate company that specialises in the sale of distressed properties. In an effort to help distressed homeowners, banks are working with reputable estate agencies to sell their properties at market-related prices. “Selling the home through a distressed property channel is sometimes the most effective way of keeping the homeowner’s credit record intact and recovering from the financial crisis at the same time. If the homeowner has enough equity available, sometimes the sale is enough to cover the remaining outstanding amount on the bond as well as other debt the homeowner may have. This option could help the homeowner to start with a clean-slate and re-establish themselves and their credit record,” says Goslett.


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