SA Bank Repo’s – A traumatic event in anyone’s life!
Literally thousands of people have been affected by the global financial credit crunch which has sadly resulted in homeowners not being able to afford the repayments on their homes and ultimately losing them back to the credit providers.
On the positive side, this has presented a huge opportunity for first time home owners and property investors to pick up great bargains. In almost all instances, properties, homes and vacant land can be purchased at prices well below market value which makes them a wise investment for anyone who can afford it.
Bank repossessions – A traumatic event in anyone’s life!
With the current economic climate, even if one is careful with managing your finances, one can easily fall victim to not being able to manage a bond repayment that was probably well within your affordability when you initially purchased the property, but has now become a commitment that is difficult to manage due to the rising interest rates and cost of living, petrol and other essential items.
The banks will of course take action as soon as mortgage payments are not being kept up to date regardless of the reason why you have stopped making payment which, could lead to the repossession of the property if they feel that you are unable to meet your monthly repayments either presently or in the future.
However, you can prevent repossession
Many property owners, who cannot meet their bond repayments, make the common mistake of not contacting their bankers and ignoring the bank’s telephone calls and letters. If you know that you are not able to make payment, you need to immediately contact your bank and schedule an appointment explaining the situation as it is in the bank’s interest to assist you with finding a solution to the problem.
There are various possible solutions as each situation is unique
· Until your situation has improved – the bank could offer you 6 months of paying only half of the monthly amount, or 3 months of making no payments, depending on your personal situation;
· You could extend your mortgage payback period to 30 years, or apply for an interest only mortgage. This will give you more cash in hand, but you will be paying more interest. You could always change the mortgage repayment again once your situation has improved;
· Your accountant or financial advisor could give you financial advice. They have experience with situations like and could probably be able to suggest feasible options that could be implemented.
The consequences of not keeping up with your bond payments
· If you do not keep up with your monthly payments, and do not communicate with your bank and work with them to find a solution, you stand the possibility of bank repossession. If a solution cannot be found, the bank will take steps to have the property repossessed;
· Some people give up and wait for the bank to do the repossession thinking that their financial worries will be over after the bank has repossessed the property, but as soon as your house has been repossessed, you could have other creditors knocking on your door and due to the repossession you might be financially ruined for a long time as you will not be able to get further credit;
· When a home loan client can no longer afford his home loan payments the bank is forced to cancel the home loan agreement and institute legal action against the defaulter. Once judgment is obtained through the courts, the property is attached by the Sheriff of the Court and sold on an auction as a Sale of Execution. This should not be confused with buying a property on a normal auction;
· A reserve price is set by the bank on the property to cover the outstanding debt and if this reserve price is not reached at the auction the bank will buy the property and it then becomes a property in possession. Banks are not in the property business and they would like to get rid of these repossessed properties as soon as possible, and that is where it becomes a viable option for other potential buyers to purchase a bargain;
· When the house has been repossessed, the Sheriff of the Court will perform the auction. The bank will also bid at the auction. It is important to know beforehand that the property for instance, is worth R1 000 000, and the outstanding bond is R500 000, the bank will bid at the auction up to R500 000, and then leave the auction. If the bid is granted at R500 000, the bank will get their outstanding money back, and you may be in for a shock if you think that you will be able to get any money back. Many auctions do not go much higher than the reserve price that the bank has asked for. Now the ex-owner has no house, plus a bad credit record.
The Best Action to take to Prevent Repossession
· Advise your bank of your financial situation to assist with finding a solution;
· Sell the property and settle your outstanding debts as soon as possible;
· Sell your property to a reputable property investor who will valuate your property and give you an offer to purchase within days. They will often also settle your outstanding payments with the bank before transfer takes place, so that you don’t have to worry about the Sheriff knocking at your door;
· With the National Credit Act you could go for debt review or debt counseling. You can apply for debt review at any time as long as your income is lower than your expenses and you have an income every month. The bank may not repossess your property or any other asset in your name while you are in debt review or even applying for debt review. This solution could give you more time to sort out your financial situation.
Steps to follow when buying a repossessed property
· A list of repossessed properties are available at all banks which you can request from your local branch or search on the internet. Estate agents often also have details of properties in possession;
· Ask to view the property and do your homework and calculations thoroughly, especially if the property requires any major repair work. Don’t just look at how cheaply you may be able to get the property. If major repairs need to be made, rather get an expert to give you a proper quotation rather than doing the cost estimation yourself and getting it wrong, as this could cost you dearly in the end;
· Whether you are looking at buying a repossessed house for investment or as a home, it is important to make sure that the property is situated in a good area as it is no good buying a bargain if you will never be able to sell it again because of the area;
· Check the crime rate in the area;
· The availability of schools, shops and close vicinity to main road and highways;
· Complete an offer to purchase with the assistance of a reputable estate agent or if doing this privately, hand it to the bank.
· Apply for a home loan as this is going to be required. You may apply at any bank of your choice;
· If the bank accepts your offer and your home loan application is approved, the normal process to transfer the property into your name will be set in motion;
· The Electrical Compliance Certificate must be obtained before transfer can take place and this is for the expense of the buyer. The purchaser also needs to obtain a certificate confirming that the property is free from infestation by timber destroying or boring insects, and rising damp.
Courtesy: Agent – The Official Publication of the Estate Agency Affairs Board
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