Can’t Pay the Bond? This is how you can save your property and avoid repossession.
It is sad see that there are many property investors and home owners that can’t pay their bonds due to the recent interest rate increases. To add to the trauma, many have refinanced properties to the extent that getting a quick sale in the open market is close to impossible as there is no equity left to make the deal attractive to another investor.
This makes the situation very unpleasant and dangerous for the credit records of such persons. These incidents seem to leave the property investor or homeowner stuck, panicked and very emotional about the situation.
There are however a few solutions that come from the most unexpected place – the banks.
Even though the banks are harsh and procedural and have deep pockets to easily and swiftly take legal action, they are also interested in solving problems. It is costing the bank money to take legal action and repossess a property, not to mention the time, which in corporate terms equals money.
Though more properties in execution are on the banks lists and some people have not found solutions, we are hoping that this article will give some ideas on how to go about getting help from the lenders themselves.
One may find that the banks are willing to help some bond holders experiencing temporary financial problems. Above all, property investors and homeowners must remember that the banks are smart and fully aware of the fact that rising interest rates have a negative impact on repayments.
But it is not that easy to get help from the bank. May factors needs to be taken into consideration, including factors that are part of the willingness profile of the borrower. The banks job is to keep the bank in business and will not extend help to just anyone asking for help, instead they would rather evaluate each case on its’ merits.
Before we dive into some solutions that the banks may provide, lets look at some guidelines that one needs to remember if approaching the bank for help.
The borrower should contact the bank as soon as they see a problem on the horizon. The issue here is simple. Most borrowers wait far too long before acting on a problem or even informing the bank that a problem exists. This is true for all credit forms not only mortgage bonds.
There are two main reasons for this that are purely emotional:
1) Borrowers are afraid to approach the bank. The bank is big and powerful and seems non-emotional and very threatening. When faced with this fear, one always must remember that humans work in the banks, not monsters or aliens. When talking to a bank, one is actually talking to a person. Though not all people are nice, most can be understanding, as they are also human.
2) Living in denial. This reason is the worst possible as no one can help a person that does not believe a problem exists. In this case, it is very likely that the borrower may be repossessed and never know what hit them.
The borrower should show willingness to find solutions to their problem. In other words, when calling the bank, screaming and yelling doesn’t help. It is not their fault you are in this situation. If you are frustrated, you must be emotionally intelligent enough to be nice and polite and kick your punching bag afterwards to let your frustrations out.
It is very important to remember the points above before even looking at the solutions that the banks may be able to extend. If the borrower manages to upset people at the bank, they won’t even get to a person willing to help, which could make things even worse.
Now we will discuss some ways in which you may find that a bank may be willing to help a financially struggling property investor or homeowner, if the case merits such help.
When falling behind on payments, each bank has certain procedures, however most of them are similar in nature and each case will be evaluated on merit.
All the banks have something called a Collection and Recoveries Department and a Customer Debt Managing Department some also call these Voluntary Restructuring or Loan Modification or Moratorium.
Here are the procedures of what will happen if a borrower falls in arrears:
Pre Legal Section: 0 - +/- 6 payments in arrears. The borrower will get a call whereby they will try and get a promise to pay and arrangements can be made. If these arrangements are broken 3 times in a row, it will be handed to another dept, some call it ICU. Yes, like in hospital. The borrower will be called again and be given +/- 30 days to rectify his/her promises. If nothing happens, its over to the Legal department.
Legal Dept: This is where the borrower will get the option to sign a Power of Attorney to the bank to market/sell his property through listed agents or he or she can arrange to list the property independently.
Depending on each bank these departments may have the following options for arrangements to help a struggling borrowers:
Extension of loan term, 20 to 30 years. Not favourable for homeowners at all, because the savings are not really that much compared to the additional interest. The opposite may be true for a property investor that receives rental income. This option can spell “heaven” as the interest is paid by the income received and the cash flow improves. Many investors choose this option regardless of any financial difficulties, just to boost the cash flow.
The borrower must ask or apply for a Breather Period (this is often called “Holiday”) and it entails no payment for a period of 3 to 6 months. The period would depend on the borrowers profile.
The borrower also has the option of asking for a reduction in payment, usually not less than 50% but it is negotiable.
To conclude, the borrower has to call the bank, and explain the situation in detail and they will offer some options based on personal profile. But remember, the borrower has to call the bank; not any other 3rd party.
This whole process can take quite a bit of time, and by the time, all avenues have been tried and exhausted, one can be sure that once a property is being sold on auction the bank has tried everything.
As a last word for closing. Many people listen to hear say. They have either heard or been close to person that has had a run in with a bank and lost their home. As a result of this they have already judged the bank and hold a perception that the bank is the problem and the enemy. For such people, one can only ask that they put such stories and perceptions aside. Each case is judged individually upon its' merits, it is worthwhile to giving the bank the benefit of the doubt and working with them. Your case always stands a good chance of having a completely different and perhaps better outcome than those you have heard of.