Due to general increases in the cost of living, homeowners and property investors are finding it increasingly difficult to keep up with their home loan repayments. To add to the trauma, these owners are also finding it difficult to sell their properties in order to get out of the debt, due to the general slow down in the economy. In addition, following the introduction of the National Credit Act, buyers are finding it harder to obtain sufficient finance from banks.
This reality is frightening and potentially becomes very dangerous for the credit records of homeowners. But before you throw in the towel completely and physically take your front door keys to the bank manager to say that he will have to take your home, because you cannot afford it any longer, make an appointment to see him, or contact him telephonically to discuss with him whether the bank is willing to re-negotiate the terms of your repayments and to find out who the right people are to speak to.
The bank is not in the business of repossessing houses
Neither is the bank in the business of blacklisting its valued clients. Although the banks do not tolerate non-payment of credit agreements and they have the resources to take legal action when you default, they are also there to assist you in solving a problem when it comes to your debt. After all, the bank is in business to ultimately make a profit for its shareholders. It is a very costly exercise to take legal action against clients in terms of time and money and the banks could lose money on repossessed properties as well.
The bank’s procedures in taking legal action against you
Each bank has a different method and different departments with different names, using different terminology, but in general, they all use a similar procedure when taking action against you in order for you to rectify your debt liabilities.
They all have what could be called a ‘Collection and Recoveries Department’ and a ‘Customer Debt Managing Department’ or ‘Voluntary Restructuring’ or ‘Loan Modification’ or ‘Moratorium Department’.
Generally, if you are in arrears of between 1-6 months on your payments, the bank will contact you and try to get a commitment from you to make the payments. If this commitment is still not honoured 3 times in a row, it will be handed to another department, where you will be given +/- 30 days to rectify the problem. After this, if the problem still persists, the bank will start legal proceedings. Their legal department will make arrangements for you to either sign a Power of Attorney in favour of the bank to market/sell your property or you can arrange to list the property independently. Further legal action to blacklist you and repossess your property will be taken if this does not remedy the situation.
Approach your bank for help before you default on your payments
You may find that the bank is willing to help you if you are experiencing temporary financial difficulty. It may take you weeks to actually find the correct decision maker, given that the banks have thousands of staff members who do not have the authority to make such decisions, but eventually you are bound to reach the correct person.
There are many factors that will be taken into account when the bank analyses your financial situation and considers whether it will be financially viable in the long run for them to extend their assistance. These factors may include your relationship history with the bank in terms of how long you have been with them, how your accounts have been managed in the past, your credit history and current credit exposure, the extent of your financial difficulty, and many, many more factors. Each case is evaluated individually, and each case may have different circumstances which will be taken into account.
When approaching the bank, you must first establish exactly what the extent of your financial difficulty is, and perhaps come up with a proposal as to how you think you will be able to overcome the next couple of difficult months, while still honouring your debt. This way, you are not giving the bank ‘another’ problem, but rather giving the bank a proposed solution to what could ultimately become a problem for them. From here, the bank can always come back with a counter-proposal on how to sort out the difficulty. This will also eliminate the feeling that you might experience that the bank does not care if they approach you with a plan that is still way out of your reach.
Important tips for approaching your bank:
Do not wait for too long before acting on the problem. You should contact your bank as soon as you see the problem on the horizon.
Keep in mind that the person who is making the decision on whether to help you or not is also human, and will probably do everything in his power to try to help you.
Your frustration, fear, humiliation and emotions may be very high at the time of communicating with your bank. You must remember that it is not the bank's fault that you cannot afford your debt. After all, you should have made your calculations and taken into account the idea that interest rates may rise. Avoid being hostile to the person trying to help you find a solution.
What kind of plan can the bank make for you?
There are many ways in which the bank could assist you during difficult times. They may extend your loan term to 30 years, which is not favourable for you in the long run as you will have paid a lot more interest at full term, but it may give you the break you need right now in terms of a lower monthly repayment. The bank may even be able to give you a ‘Holiday’ period, whereby they arrange that you don’t have to pay your bond for a certain period, i.e. 3 or 6 months. Be aware that interest will still be calculated on your outstanding home loan amount, which could result in higher repayments once the ‘holiday’ is over. However, your financial position may have improved by that time.
Can you go back to your original payment plan, if your financial situation changes?
Yes, and you HAVE to. If your financial position does take a turn for the better, you must go back to your original payment plan, in order to ensure that you do not end up paying the long term price for the help you received today, i.e. paying more interest than is necessary, getting complacent with lower repayments and wasting the money on unnecessary luxuries. You must realise, that although interest rates can go down again, and your financial burden may become lighter again… It is highly likely that in the 20- or so years that you pay off your home loan… you may find yourself in trouble again, and if you have used your leverage by increasing the term on your bond… there may be no leverage next time! So, it is advisable to restructure your bond, back to the term that it was at prior to your financial difficulty and catch up on the shortfall.
This article originally appeared in Property Power 13th Edition Magazine. To order your copy at the discounted price of R120 click here