Homeowners in financial trouble should take immediate action

© stokkete – 123RF.com

"This year, those with high debt levels will be heavily affected as the interest rate increases and the cost of living continues along its upward trajectory. While for some it may simply be a matter of readjusting certain behaviour to rectify their financial situation, others may find themselves in more dire circumstances further along the road," says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

"Due to the fact that many feel overly stressed and sometimes shameful about their financial distress, they are less likely to communicate about the topic and ask for help. However, it is vital that homeowners in financial trouble take immediate action and proceed with the necessary steps before the situation slips out of their control. It is a time to act decisively, take control of the situation and consult with people who can assist."

Goslett offers homeowners advice on how to handle this often complex situation:

Evaluate your situation

Homeowners need to be honest with themselves and look at their circumstance objectively when determining whether they can continue to pay their bond. If a homeowner can no longer afford their bond, they need to notify their lender as soon as possible.

"Avoiding the situation and doing nothing is the worst possible decision a homeowner in distress can make. It is best to be upfront with the bank and tell them the situation, rather than defaulting on a payment without notification. If the situation is left to run its course, it will not only result in the homeowner losing their property, it will also lead to a tarnished credit record and black listing," says Goslett.

He adds that a blacklisting will leave the consumer unable to obtain any credit for the next five to ten years. This means that even renting a property will become difficult due to the fact that most landlords do credit checks on their potential tenants.

Communication is key

Some homeowners might be under the impression that the bank will repossess their property as soon as they communicate their distress. However, this is not the case. Banks want the homeowner to keep their property and will try to assist where possible to ensure that this happens, but the only way they can help is if they are aware of the situation.

"There are a number of ways that the bank can help the homeowner, such as rescheduling debt, offering some advice on the right steps to take or renegotiating the term of the loan from 20 years to 30 years. However, this can only be done if the bank knows that the homeowner requires assistance. Once the homeowner tells their lender where they are financially, the bank will be able to offer solutions," says Goslett.

Seek professional council

If the situation has gotten to the point where the homeowner can no longer handle it by themselves, it is advisable that they make use of a professional debt counsellor who can provide guidance. A debt counsellor will be able to assist the homeowner in reviewing their finances and submitting a proposed repayment plan to the relevant creditors. An application will be made in court to have the proposal granted.

Once the proposal has been granted creditors will not be able to proceed with legal action and the bank will not be able to repossess the property. If it seems as though the homeowner's circumstances are not likely to change in the near future, they can opt to be placed under administration rather than debt review - however, in this case the property can be repossessed to order to mitigate the debt.

Sell the distressed property

According to Goslett, homeowners that do not see any way out of their financial situation can opt to consult with a real estate company that specialises in the sale of distressed properties. In an effort to help distressed homeowners, banks are working with reputable estate agencies to sell their properties at market-related prices.

If the homeowner would like to keep their credit record intact, the most effective method of doing so is selling the property and recovering from the financial crisis. "In certain cases where the homeowner has built up enough equity, they may be able to cover not only their remaining bond, but also some other debts as well. Essentially this option could provide the homeowner with an opportunity to start again with a clean slate," says Goslett.