Solutions for homeowners in financial distress

PROPERTY NEWS - While the South African economy has seen much recovery and shown vast improvement since the recession, many homeowners are still finding themselves in distress and facing increasing tough financial times due to the rising cost of living among other factors.

“While the impact of the recession period has partly been mitigated by the last two years of economic recovery, it will still take some time before the market sees a full recovery. It is likely that in the year ahead some homeowners will still find that they are unable to afford their bond repayments. This can often be an overwhelming experience for homeowners, who may not know how to best handle this often complex situation,” says Adrian Goslett, CEO of RE/MAX of Southern Africa.

He provides some answers to common questions distressed homeowners might be asking:

I can no longer afford my home – what now?
The emotional and traumatic issue of losing their home can leave homeowners feeling as if they have no options. Goslett says that because of how they feel in these situations, homeowners often give up and do nothing but let the process run its course. However, doing nothing is the worst thing that distressed homeowners can do. He notes that even in financial distress there are proactive things that can be done to better the situation.

“If a homeowner does nothing, not only will they very likely lose their home, they will also be blacklisted, which can result in a ban from obtaining any credit for the next 10 years. While blacklisting and how it impacts consumers may be affected by the credit amnesty bill, negative credit information will severely taint a consumer’s credit score. Unfavourable credit scores will make obtaining credit very expensive, if the consumer can obtain the credit at all. Therefore the best option for distressed homeowners is to take action by accepting responsibility, taking control and acting decisively,” says Goslett.

He notes that making false promises to catch up on payments or ignoring the situation will only 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.

Goslett advises that whatever happens, homeowners should never take on more debt in order to finance their home loan.

Do I communicate my financial situation with my lender?
“Most definitely,” says Goslett. “Speak to your bank as soon as you can – don’t wait until there is a really big outstanding amount. If the bank is aware of the homeowner’s financial situation they may be able to offer a solution or assist the homeowner in some way. The bank will be more understanding with a homeowner that is upfront and wanting to deal with the issue than a homeowner who has defaulted without any communication. It is far more beneficial for the bank to assist the homeowner or help them to sell their property than have a repossessed property that they have to sell themselves.”

He notes that in some instances the bank might be willing to give the homeowner a ‘holiday period’, where they don’t have to pay the bond for a few months and can perhaps get back on their feet financially. There might also be the option of negotiating a longer term on the bond, which would decrease the monthly repayment amount. While these could be relatively short-term solutions, they may be the difference between losing the property and keeping it.

Should I seek professional help?
Consulting with a debt counsellor or property consultant will assist homeowners to assess their financial situation without bias or emotional attachment. If required a professional debt counsellor will be able to review the homeowner’s current standings and submit a proposed payment plan to all of their creditors. An application will need to be made with the court to have the proposal granted and place the homeowner under debt review. This will cease any legal action against the homeowner and the bank will be unable to repossess the property.

Debt review assumes that the situation is a short-term predicament that the homeowner will be able to rectify in the future. However, if the situation is one that is more permanent, the homeowner can be placed under administration. In the case of administration, the home can be repossessed to mitigate the bank’s losses.

Can the property be sold to cover the outstanding debt?
If there is no way of keeping the property, distressed homeowners have the option of selling their property to alleviate their debt burden and keep their credit rating intact, provided enough equity has been built up to cover the outstanding bond amount. Selling the property could get the buyer out of their current distressed situation and fast track their re-establishment in the future.

In an effort to assist homeowners before the repossession phase, banks are now selling distressed properties at market-related prices with the help of reputable real estate agencies. Goslett says that RE/MAX of Southern Africa is the only real estate company in the country that has a dedicated distressed property department and Certified Distressed Property Expert (CDPE) qualified agents who are trained to assist homeowners with these specific types of properties and situations.

Distressed property sales undertaken through RE/MAX of Southern Africa have been highly successful with the average selling price around 91% of the asking price. In addition, the number of offers that have been accepted by the banks has increased considerably and distressed properties have spent an average of 45 days on the market before selling.

“Solutions are available to distressed homeowners; however the key is for them to act as soon as they find themselves in a situation where they can no longer meet the financial requirements of homeownership. Timing is of the essence, along with making the right choices,” Goslett concludes.

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