Forced sales: Manage the process
Homeowners under pressure to sell their property because of credit difficulties are advised to manage the process as far as possible.

Dr Willie Marais, national president of the Institute of Estate Agents (IEASA), says selling your home when you fall behind on mortgage repayments should be a last resort, especially if you owe more than the property is currently worth.

“This is what is called a ‘short sale’ in the US and it means that the home seller has to pay the bank the difference between the selling price and the outstanding bond amount - and on top of that find alternative accommodation. However, it may be necessary to protect the seller’s all-important credit record, so that he or she can qualify for home financing in the future.”

He says consumers who do find themselves in this situation should urgently enlist the help of a trained estate agent, who will be able to manage the whole process efficiently and obtain the best possible price in the shortest possible time.

“Sellers should also inform their bank of their intentions if the selling price is likely to be less than the outstanding bond amount. They will also have to sign a debt agreement with the institution and make arrangements to pay off the shortfall.”

Marais adds that it is quite human to keep hoping that matters will improve when you find yourself in a difficult spot, but says a more pro-active approach may well prevent more serious consequences.

“The first response should be to approach the lending institution and try to reschedule the debt. The bank might be willing to extend the period over which the bond is repayable – for instance up to 30 years – in cases where the borrower’s financial difficulties are likely to be temporary.”

Another option may be to rent out the home and scale down to cheaper rental property yourself – although this will only work if the property will achieve rental income considerably higher than the rental that the owner will have to pay for alternative accommodation.

“And if all other measures fail, homeowners can go for debt counselling, in which case the bank will be informed and an intermediary will attempt to negotiate an acceptable agreement. Part of the agreement may be that the property is surrendered to the bank, and the property will be attached after due legal process. Although this will wipe the debt slate clean, owners will not be able to obtain credit again before they have been rehabilitated in terms of insolvency legislation.”

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