Reality vs The Dream
To state the obvious, may well be necessary, to drive the point home. The bank granted you a loan to purchase your home. The loan amount was paid to the seller from whom you bought the house. You now have occupation and ownership of the house, subject to honouring your monthly repayments to the bank, for the home loan it has given to you. If you do not honour your monthly repayments to the bank, subject to due process, the bank has the legal right to repossess and sell your home. Put another way, your home is “owned” by the bank, until you pay off the home loan. Only when the home loan is settled in full, does the bank relinquish this right to your home. Only the, do you “own” your home, without any encumberment.
Consequences of Not Paying Your Monthly Instalment
There are a number of serious consequences to defaulting on your home loan. Missing even one bond repayment becomes a problem as there are penalties incurred and catching-up, if you are already experiencing financial difficulties, becomes a difficult task.
What happens, if for some reason I don’t pay the monthly instalment to the bank?
In short, (and the worst case scenario) the bank has the legal right (after following due process) to repossess your home. This means that you will be forcibly evicted from your home and thereafter it will be sold. Despite this, you will still be held liable for any outstanding loan amount (after the bank sells your house and sets-off the proceeds against your loan account). This means that not only have you lost your asset, and your home, but you still owe the remaining balance to the bank.
There are other effects that flow from this as well.
Defaulting on your home loan negatively impacts your credit profile. You will be blacklisted and this will make getting any credit difficult.
The bank will take a judgment against you. This judgement remains on your credit profile for five years, making qualifying for simple things such as a cell phone contract, credit card or short-term loan virtually impossible.
Once you have a blacklisting and judgment on your credit profile you may find this affecting your life in other ways, such as difficulty in finding employment as many employers do some credit checks before employing someone.
Another issue that arises out of defaulting on bond payments include the high cost of legal fees. If a home loan account is three months in arrears, the bank will usually start with some sort of legal action. You are responsible for these legal fees, which can run up to R25 000 if a bank needs to take a judgement against you.
A typical bank collections process, from you defaulting on repayment, to repossession of your home, looks something like this:
- You default on 1 or more monthly instalments;
- The bank calls you, then sends your written notices;
- The bank sends you a letter of demand and/or a S129 notice – this is a pre-cursor to them taking legal action;
- The bank issues summons against you – the start of litigation;
- The bank obtains default judgment against you – if you fail to defend the application in court;
- The bank applies for a writ of execution – the court allows the bank to evict you from your home and sell it;
- The sheriff of the court is instructed to evict you from your home;
- The bank sells your home – usually far below the market value;
- The proceeds from the sale are set-off against your home loan account – but the bank adds the costs of: collection fees, legal fees, cost incurred in selling the house, interest charges etc. to your home loan account
- In the majority of cases, even after the sale of your house, there is still a short-fall i.e. you still have an outstanding balance on your loan account that you are liable for, despite no longer having your home;
- The bank applies for another writ of execution – this time to repossess your other movable assets or an emolument attachment order to garnishee your salary, until the loan is fully settled.
What LUCID Can Do For You
But, before the bank can repossess your home, there are a number of options available to you. With expert and professional assistance from LUCID, we will guide you to a solution that allows you to keep your house and not tarnishing your creditworthiness.
Depending on the number of months you are in arrears, the amount of the arrears and your reasons for non-payment, we will find a suitable solution. There is no “one size fits all”. Each case has to be assessed on its unique facts.
Some of the solutions we can arrange include:
- “Repayment holiday” – no repayments for a fixed period;
- Reduced monthly instalment for a fixed period;
- Extending the term/period of the loan;
- Debt review – this is a last resort, when all other options have been exhausted;
- Defend the application for default judgment;
- Have the default judgment rescinded;
- Stop repossession;
- Reconciliation of the loan account, after repossession and sale – to ensure you are not held liable for unnecessary costs and to avoid further legal action.
What Not To Do
- Don’t wait for the bank to start “collections” action. Admitting you need help as soon as you realise that you are heading into financial difficulty will go a long way in protecting your home. Contact LUCID before you fall behind, on even a single instalment. When you’re not in arrears you increase your chances of a positive outcome, in negotiations with the bank.
- Don’t take on more debt (personal loan) to meet your monthly instalment or to catch-up on the arrears on your home loan. By doing this, you just postpone the pain. The fact is that, in 90% of cases, extra debt buys you a few months before a bigger problem needs to be solved.
- Don’t stop payments, do nothing and wait for the bank to take legal action. The bank will obtain a judgment, repossess your house and sell it for next to nothing – leaving you with a higher balance to repay, because of all the collection costs, legal fees and interest.
The longer you choose to ignore the issue, the fewer options you have available.
Contact a LUCID Financial/Legal Advisor now to assist you – (T) 010 590 5617