It's quite probably every homeowner’s worst nightmare.
If your home is repossessed it can cause huge amounts of stress and uncertainty.
With our biggest asset, falling behind on repayments has an incredibly damaging effect on our lives. There are ways to prevent house repossession though, and in this house repossession guide we will look at those and offer advice that should help you steer clear of the issue.
First though, let's gain an understanding of what repossession is and what it means for you.
This is vital if you're going to be confident enough to take on the problem. If you're facing repossession or if you’re looking to sell a property quickly because of mortgage payment issues, the following advice is essential.
What is repossession?
When you buy a property, you own the property.
This is why property is such a dynamic area for investors. Buildings are costly, and owning one is the biggest personal investment you can make in your lifetime.
However, while you own the property, the lender who arranged the finance for you (the mortgage) has a financial claim on it. Until you pay off the debt, that claim remains. This means that if there are issues around payments towards the mortgage, the lender has a right to take the home off you.
If all of the mortgage payments are not made, in full, then the lender is within their rights to take possession of the property. It's important to know that only a court can decide that the lender has the right to take the home off you. Also, a court is again the only body that can decide if bailiffs can be sent to the property to evict you.
A lender cannot just decide to come and take possession of the property.
What causes it to happen?
Everyone’s circumstances are different, and they also differ in complexity.
There are a number of reasons that make repossession a possibility. The fundamental issue concerns the fact that a property owner falls into arrears either on the mortgage or any other loan that has been secured against the property.
Arrears are failed payments. They can build up over time if you do not not stick to a repayment plan provided by your lender.
Arrears happen because of a change in circumstances such as:
Sickness or an accident that left you with a significant injury.
Redundancy, or a reduced number of hours at work
All of the above (and other circumstances) can result in financial difficulties, and can mean that you miss mortgage payments.
It's also quite possible that a repossession can take place because of:
The breaking of conditions of a lease, for example, not paying ground rent
A compulsory purchase order being made by the local council
Stages in the house repossession process
This kind of thing doesn't happen overnight, but there is a very clear process involved in repossession.
The steps are as follows:
Your lender will contact you
Because lenders are required to act fairly, and a property owner has rights, the lender will write to you first, to explain the problem and to ask you to take steps to deal with it.
They will take your response and then write to you again, with a clear notice that will start court proceedings if you do not respond this time, or if they are unhappy with your response.
At this stage it is perfectly possible that you can negotiate with your lender.
The lender applies for a possession order
The lender has to take this action before the next stage takes place. Here, the lender has to apply to the local county court for a repossession order. When they do this, it is up to them to explain why they would like to repossess your home.
The court is now involved
After hearing from the lender, the court will write to you explaining the situation. They will give you a date for the hearing, and a copy of the claim form the lender has submitted.
You will also receive a defence form, which you are expected to complete. You must complete the defence form and supply it to the court.
The judge hears the case
A judge will hear the case in the County Court.
At this stage the judge will look at the evidence supplied, and hear from both you and the lender. He will listen carefully to the facts of the case and then make his judgement.
He or she may say that your property will be repossessed. This means eviction. The lender will then have the property to ‘sell off’
The judge may make a suspended possession order. This allows the owner of the property to stay, as long as they keep to special conditions the judge will outline
The judge may adjourn the case. This allows you and the lender to discuss it further before the rearranged court date
The case may be dismissed
If a repossession is ordered
If the judge states that a repossession is needed, then things will move quite quickly. The usual time period in which the judge will expect the repossession to happen is 28 days.
In certain circumstances the court can extend this to 56 days. An added issue could be the costs. The lender may have their legal fees transferred to you if the judge thinks this is appropriate.
This is where the lender applies to the court for a bailiff’s warrant. If they do not have one of these, you cannot be evicted.
The charity Shelter summarise the procedure for repossession:
After you have been evicted, the lender will then aim to sell the property. While the sale is moving forward, you will most likely be ordered to pay interest on the outstanding debt.
And how long does all this take?
There are a number of factors that can either lengthen or shorten an average timescale for repossession. We can’t see a repossession taking much longer than 6 to 8 months. Some take over a year but that’s because they are complicated.
However, there are other aspects that can extend a repossession process and possibly prevent house repossession. As part of your understanding of repossession and the process as whole, it's worthwhile considering some of the following points to see whether or not you can ask the court to slow things down.
What this looks like
A busy court
The court may have numerous mortgage-related cases, and you may have to wait longer for a court date
Is the lender under pressure?
If good financial market conditions prevail, banks and other lenders take time to pursue their money. This could slow things down considerably
If you can prove that you are cooperating with your lender and trying to get your finances in order, this can extend the time period
You have the legal right to wait for a court appearance notice and this has to arrive at least four to eight weeks before a court date
How to stop repossession from happening
Repossession is very much a last resort for the courts and for lenders. But if things are too far down the road, then it may become the only option. However, by making sure you get a few things done as quick as you can, there is a chance you could prevent a repossession from being ordered.
Always contact your lender
If you feel that you're struggling, you should always contact your lender as soon as possible.
They really do want to prevent house repossession, and will be happy to talk to you about what your plans are to stop it from happening. The very first thing you should do is create what is known as a ‘holding letter’.
This may make it possible to gain some extra time before any legal issues come up. The holding letter should tell the lender why you’re in arrears, and tell them that you are trying your hardest to clear the arrears. Also, you should tell them in the letter that you will contact them with your plan.
This may only buy you a few days, but it should be long enough to speak to a legal adviser, for example, to work out your plan.
Take a fresh look at your money
The mortgage is the biggest financial outlay the majority of us face every month. You should have a budget that allows for it to be paid first, before anything else. Take a look at your home budget and see where you could cut spending to manage any mortgage arrears, and better prepare for future payments.
Have a clear proposal to make
You should have time to seek advice before you respond to any request for arrears payments. Ask an adviser to help you put together a proposal for the lender. This should be a clear document that outlines exactly what you will do to repay.
Once the lender has received your proposal, they have ten days to respond. They may say that it is fine and that they will leave you to it as long as you stick to the terms. They may state that they will start repossession proceedings. Obviously, legal action is to be avoided, so try to discuss it further with your lender.
The response to that holding letter should come back from the lender within 10 days.
Is there a sufficient pre-action protocol
Your lender has to follow a set of rules before they choose legal action. This is what is known as the ‘pre-action protocol’. A letter has to come to you first, before anything else happens, and the contents of that letter are very specific.
The lender must include in the letter:
The amount of arrears you currently owe
The total amount you owe on your mortgage
Any further charges or interest that is to be added to the arrears
This has to be in your possession before the lender considers legal action.
This is where the value of the home is less than the amount outstanding on the mortgage. You can take the step of selling the property to pay off the debt, but if negative equity is there, then you will have to ask your lender to let you do this.
It is a way of gaining funds on an asset, rather than income, but bear in mind negative equity is a dangerous area, and the lender will definitely chase up the remaining debt and can take legal action to reclaim it.
Could you sell your house quickly for money?
Before you do though, consider this.
The valuation of the house
First of all, make sure that the sale of your home will actually cover the mortgage debt. It may not, so it is important that you speak to a local estate agent and get an accurate valuation.
Costs of selling
And don’t forget the costs involved in selling a property. This can really add up, so it is worth factoring them into any decision to sell quickly.
Your current mortgage payments
Finally, you will still have to keep up the mortgage payments until you sell the property. If this is simply not possible, then contact your lender and tell them exactly what is going on. They may be able to delay any serious action for a certain period of time so that you can sell and bring in the money.
Speed of selling
A final option to prevent house repossession would be to sell your house to a cash buyer. This makes sense, as long as you are careful with the companies you consider selling to. Be ready for a lower offer than what you expected, because cash buyer companies need to make a profit. Again, this is a question of finding the right company, and knowing how much your property is worth.
A (dreaded) last resort
House repossession is something that nobody wants, even lenders. Good communication and the seeking of advice is key. And if you have a property, for example, and are able to sell it quickly, this will help you get rid of the problem faster, so that you can move on.
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