RESTRUCTURING YOUR MORTGAGE REPAYMENT

Approximately 3 million South Africans have lost their jobs as a result of COVID-19. Of those who remain employed over 25% have had their incomes reduced. It doesn’t take a rocket scientist to see that many households are under considerable financial pressure and with home loans often being the biggest expense, are likely to default on these obligations.

Despite the COVID-19 payment reprieve offered by banks, tough times in the South African economy are here to stay for a while and consumers will be faced with much financial strain before things return to ’normal’. Under such circumstances it would easy for homeowners to feel stressed, helpless and defeated and to wait for the worst – bank repossession of their property.  

Contrary to popular belief, banks are not in the business of repossessing homes but rather in the business of lending money. In fact taking legal action to repossess a home and collect on an outstanding debt is a very expensive and cumbersome exercise, which banks would like to avoid. This does not however mean that banks will accept non-compliance with home loan agreements (or any other credit agreements), after all the money lent must be collected in order for the business of the bank to make a profit and where necessary banks will take legal action to collect.

Instead of waiting for the ‘worst’ consumers can and should communicate with their banks, either to formulate a restructure plan that could ‘ease’ their repayment obligations or to commence a banks assisted sale of the property. Consumers should view this as a tactical move to preserve their homes and where possible reduce other debt obligations rather than a failure with a cause for shame. Financially difficulties can happen to anyone unexpectedly. Even large corporates go through financial difficulties and call arrangements with banks, yes – restructures or refinancing.

Repayment Arrangement

All the major banks have a department that deals with restructurings in one form or another. For consumer’s experiencing temporary difficulties, it is essential to get in touch with the relevant department the moment you sense you will not be able to keep up with your repayments and make the necessary application for a plan to be formulated.

Practically the bank, if it is satisfied with the information provided, will typically (depending on each banks internal requirements) reduce the consumers’ repayments for a period of between 3; 6 or even 12 months or extend the period of the mortgage.

Once the arrangement is agreed, consumers should stick to the arrangement to avoid legal action. It is therefore important for consumer’s to understand their financial position and agree to terms they will be able to abide by.

Bank Assisted Sales

This option is aimed at consumers with more permanent financial difficulties. In terms of this option, consumers’ who will no longer be able to comply with their repayment obligations will approach their bank to assist you in selling their property for the highest offer possible over an agreed period of time. Consumers are allowed an opportunity and time to work with the bank to sell the property and by so doing avoid the sale of your home through execution by the sheriff where the best price possible may not be obtained. Sales in execution can leave consumers in a worse off position as the consumer would be liable for any amount that remains outstanding after the sale.

In the long run it is far better for the bank and the consumer to reach an understanding on either a payment arrangement or an assisted sale process. Banks will try to support consumers during troubled times but this also depends on consumers wanting to engage and not viewing banks as the ‘enemy’. It is only after trying the above methods and failing or consumers in default refusing to engage where banks will obtain judgments and proceed to sell properties in execution.                        

*Disclaimer: The contents of this article should not be considered as legal, professional, financial or any other form of advice. These are merely views based on the writer’s personal experience. Readers should obtain independent advice on any matter prior to making any decision.

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