Options for distressed homeowners

While there has been some economic improvement since the recession, and the property market has levelled out and seen some growth, many consumers are still battling with financial strain and may be unsure as to whether or not they can afford the property they live in. RE/MAX of Southern Africa, CEO, Adrian Goslett says that while RE/MAX has seen a decline in the number of distressed properties entering the market, they are still handling a number of sales in this sector.

“Although we have recently seen a decrease in the fuel price, over the last few years the cost of living has increased greatly. This, along with the fact that many South Africans are still struggling with high debt-to-income ratios, means that distressed home sales are still very much a part of the property market today,” says Goslett.

He says that homeowners who find themselves in financial difficulty need to relook their circumstances and make adjustments as soon as possible in order to rectify their situation before they find themselves in more a more dire predicament. “If a homeowner is in financial distress, the worst thing they can do is nothing – action needs to be taken as soon as possible. Very often homeowners are either ashamed to ask for help or don’t know where to turn. Not seeking help will only make the matter worse. For the best results, a homeowner will need to act decisively and take control of their financial situation,” advises Goslett.

He provides homeowners with some advice on how to handle this often complicated situation:

Examine your status

The crucial first step for homeowners who are in financial difficulty to take is to assess their financial status to determine if they are able to continue paying their bond or not. Goslett says that if the homeowner has asked themselves this question and the answer is no, they will need to take the necessary action straight away. “The homeowner will need to contact their lender and notify them about their current financial standing. The sooner this is done, the better,” says Goslett. “Homeowners may shy away from contacting their bank due to the thought of their home being repossessed, however, avoiding the situation and defaulting on the bond repayment without notifying the lender will not only result in the homeowner potentially losing their property, it will also lead to a tarnished credit record and black listing.”

He adds that a negative credit record can make even renting a property difficult due to the fact that most landlords do credit checks on their potential tenants.

Talk about it

It is in the bank’s (and the homeowner’s) best interest for the homeowner to continue living in the property and paying the bond, so banks often assist financially distressed homeowners by rescheduling the debt or giving financial advice. However, this can only happen if the bank is made aware of the homeowner’s situation at an early enough stage, and provided that the homeowner has the means to continue making payments on the bond. “Communication is a key element for homeowner’s in financial distress. Talking to their bank and letting them know they require assistance is crucial. In some cases banks have been known to renegotiate the term of the loan from 20 years to 30 years or decrease the amount of the monthly bond instalment. While these solutions do mean there will be implications on the overall interest of the loan amount, it can provide a temporary reprieve for a tight budget. There is also the chance that financial institutions would be willing to offer a holiday period on the instalments of between three to six months, giving the homeowner a chance to sort out some of their finances,” says Goslett. “At the end of the day, if distressed homeowners are not willing to discuss the matter with their bank, they won’t know what kind of solution the bank could offer.”

Seek professional advice or help

In the case where the situation has progressed beyond where the homeowner can handle it on their own, it is advisable that they consult with a professional such as a professional debt counsellor who can review the homeowner’s finances and provide guidance. The counsellor will then be able to submit a proposed repayment plan to the relevant creditors. Goslett notes that an application will then be made in court to have the proposal granted and creditors will be unable to proceed with legal action, and the bank will not be able to repossess the property. “There is also the option for the homeowner to be placed under administration rather than debt review, if they so choose. Unlike debt review, if a homeowner is under administration, the property can be repossessed to order to mitigate the debt,” Goslett explains.

The option of selling

If there is no chance that the situation will improve in the near future, it may be prudent to put the property on the market. In this case, it is advisable for the homeowner to contact a real estate agency that has experience in dealing with distressed property sales. Many banks are working with reputable estate agencies to sell distressed properties at market-related prices. According to Goslett, selling the home through a distressed property channel is sometimes the most effective way of recovering from a negative financial predicament. “If the homeowner has some equity available, sometimes the sale is enough to cover the remaining outstanding amount on the bond as well as other debt the homeowner may have. This option could help the homeowner to start with a clean slate and re-establish themselves and their credit record,” says Goslett, who adds that RE/MAX of Southern Africa is the only real estate company in the country that has a dedicated distressed property department.

He concludes by saying that although financial distress is often a stressful and complicated situation, homeowners who are in need can make use of certified real estate professionals who have the qualifications to successfully guide them through the sale of their property during these difficult circumstances.