Stressed homeowner FAQs

For many, the realities of the economic crisis are only being felt now, with many homeowners facing increasingly tough times financially. Says Peter Gilmour, Chairman of RE/MAX of Southern Africa: “Unfortunately, the property market is often the first to suffer the consequences of a tough economic climate, often with serious long-term implications for many consumers. As economic activity declines, so increasingly more properties enter the foreclosure process. However, all too often, there is such stress and shame surrounding this topic, and even though it is an increasingly common occurrence, many homeowners are not sure how to best handle the complex situation with their lenders.”

Gilmour sheds some light on the some of the most common questions defaulting homeowners are asking:

1.) I can’t afford to pay my bond anymore – what should I do?

The thought of the bank foreclosing on you and losing your house can be a very emotionally traumatic issue. So traumatic in fact, that many homeowners feel that they are doomed no matter what they do, and so they just give up and do nothing; purposefully defaulting on their mortgage. However, this is the absolute worst thing that they could do, as there are always proactive things that can be done to better the situation.

Leaving the situation to run its course, is tantamount to financial suicide – as it will not only result in losing your home, but it will also lead to a bad credit record and being black listed. Consumers with bad credit records or who are black-listed are normally banned from the lending industry for five to 10 years, which means that not only will they be declined for any type of credit application, but they will even find it difficult to rent a home, as the majority of landlords run credit checks on their prospective clients. The best thing to do in these circumstances is to take immediate action – accept responsibility, take control of the situation, consult broadly and act decisively.

2.) Should I communicate my financial situation with my bank?

Yes – it is highly advisable to contact your bank and let them know your situation, as they may be able to help you and will be more sympathetic with you when dealing with the problem. Most banks have recognised the dire economic times we are living in, and the majority of them are bending over backwards to reschedule debt and help homeowners keep their homes. For example, you might be able to negotiate what is called a “holiday period”, which is normally a three to six month period where you don’t have to pay any instalments. This will offer you a short-term solution to your problem, with the hope that you will be back on your feet once the holiday period is over. Alternatively, you could perhaps negotiate a longer bond term – in other words, instead of paying your bond off in 20 years, you can pay it off in 30 years, which should decrease your monthly repayments. If you are not sure about how to approach your bank, or you would like to explore further options, you should contact professional debt counsellor who should be able to help you “get your ducks in a row”, so to speak.

3.) What are the benefits of going under Debt Review and going under Administration?

· Debt Review: A professional debt counsellor will review your situation with you, submit a proposed payment plan to all your 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 the process, and the bank cannot repossess your house.

· Administration: A process that is very similar to that of debt review, but it is viewed as a more permanent measure. Unlike Debt Review, which assumes that your debt is a temporary crisis, Administration assumes that the situation will not be remedied in the short-term, and hence longer-term settlements will be negotiated with your creditors. Here, your property will be repossessed to help settle your debt.

4.) Can I sell my property to cover my debt?

There are many cases, where the debt burden is just too big for borrowers to manage, and in these cases, the best chance of recovery and keeping their credit rating intact, is to sell their property and use the proceeds to cover their debt. That is to say, as long there is enough equity in your property to cover the outstanding bond amount. Such a sale would release you from any debt obligations and allow you to re-establish your credit faster and enter the market again much wiser.

If a homeowner continually fails to pay the home loan instalments to the point where the home loan is cancelled by the financial institution, the home will be repossessed. However, in an effort to assist homeowners who are no longer able to afford their bond repayments, the banks are now selling these distressed properties through reputable estate agents for a market-related price. RE/MAX of Southern Africa for example, is currently working with First National Bank, Standard Bank and Nedbank to sell their distressed properties. There is a dedicated RE/MAX assisted sales department that manages approximately 200 distressed sale leads per month, with an 80% success rate. These properties are sold on average within 30 to 45 days and on average also achieve more than 85% of the asking price, which could mean a quick solution for many homeowners to a stressful and complex problem.

5.) When, if ever, should I consider sequestration?

When you are sequestrated, all debt is written off. If there is really no light at the end of the tunnel and there is no way you can possibly find your way past the debt, then you can consider sequestration. However, it should be seen as a last resort as it will leave you with seriously negative financial ramifications with regards to being blacklisted and not being able to start a new business for up to 10 years.

6.) What are the do’s and don’ts of handling such a crisis?

· Speak to your experienced property consultant or bank as soon as you can – don’t wait until you’ve built up a really big outstanding amount.

· Proactively discussing the situation with your experienced property consultant and working with them to find a resolution is always better than giving up and doing nothing at all.

· If you find you can’t make your payments, visit a debt counsellor and seek advice on how to tackle the problem.

· Don’t make false promises to catch up, and never ignore the situation – it will lead to legal action and once a judgement is made against your name, the bank is entitled to sell or auction your home without your permission.

· Do not take on more debt in order to finance your home loan.

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