What to do when you can’t afford your mortgage repayments
In today’s economic environment, where affordability is an issue for many, the reality is that for various reasons, some homeowners who’ve bought their homes on credit and are experiencing considerable financial pressure, simply cannot make their mortgage repayments. After three consecutive payments have been missed, the banks regard this as distressed property.
However, for a distressed property owner, there is help at hand from the banks themselves, says Howard Markham, head of industry stakeholder services at Pam Golding Properties.
“Unfortunately, such a situation can arise unexpectedly and for a variety of reasons. For example, you may have been retrenched, over-capitalised on major renovations or you’ve acquired a home that is too expensive for your budget. You can then end up not only in arrears with bond repayments, but also regarding property rates and in addition, become unable to keep up with maintenance.
“As a result, you may have tried to sell the property, but battle to do so as you find that your outstanding bond is actually higher than the value of your property. These properties can range anywhere from R300 000 to R12 million. And most of these sellers are unaware that the Big Four Banks (Standard Bank, Absa, FNB and Nedbank), working together with selected real estate agencies, offer bank assisted sales solutions that can actually change their lives.”
What is a bank assisted sale?
So what is a bank assisted sale? This is a mutually beneficial programme entered into between a seller and the bank, facilitated by a bank-appointed agent, to provide financial assistance to a seller. Essentially, the seller, who is still the owner of the property, joins the programme voluntarily and is respected as such, right through to the end of the process.
Financial assistance provided by the bank includes full or partial write-off of home loan shortfalls and payment of arrears rates and taxes, levies, municipal accounts and any other miscellaneous costs associated with the transfer if necessary. Thereafter, balances are allowed to be paid off over a period of 10 years. Furthermore, the bank won’t record a credit judgement against the seller.
How to join the programme
Says Markham: “A seller can contact the bank and request to join the programme, and the bank will then allocate them an agent from their panel of estate agencies. Alternatively, an agent whose agency is already associated with the programme can approach the bank on a seller’s behalf. The bank will instruct that an independent valuation is done to establish the market value or asking price of the property.
“The seller then signs a mandate with the bank, which also formally appoints the agent to market the property, on condition that all other existing mandates entered into, in the owner’s personal capacity, are cancelled. In addition to the asking price, the mandate includes agreement on commission and the general shortfall assistance provided by the bank.”
Banks do not deal with agents directly. Each estate agency on the bank’s panel must have a dedicated Bank Assisted Sales division within their company that consists of an administrative team which facilitates these sales and handles all liaison between banks and agents. Manager of Pam Golding Properties’ Bank Assisted Sales division, Tania Smit, says that the company offers a lot of support to agents working on bank assisted sales.
“Often, we are able to look into a property’s previous offers to purchase to see what is needed by the bank to allow the sale to go through,” she says.
If you have already signed an offer and realise that your transfer cannot go through, there is still a chance that the bank will assist. Speak to your agent or your bank’s assisted sale division. You may just need to change conveyancers and amend commission according to the bank’s rates.
Marketing the property
The best part of a bank assisted sale is that it is not treated as one. Once listed, it’s business as usual for the agent – who is allowed to market the property for a 60 to 90 day period – even the offer to purchase is completed on the estate agency’s documentation. It’s important to remember that because it’s a voluntary process, the bank will never reduce a listing price unless the seller agrees, says Smit. And if you have an offer, the bank will wait for the seller to accept it.
Two small differences are that offers to purchase that are ‘subject to sale’ are not accepted by bank assisted sales programmes. Also, the seller doesn’t appoint the transferring attorney, instead, the bank will use its own panel.
Arrears and shortfalls
While the transfer process proceeds as per a normal sales transaction, this is where the real benefit of a bank assisted sale kicks in. If there is a difference between the outstanding debt to the bank and the proceeds of the sale, this will be added to any other financial assistance given by the bank.
So the bank will actually write-off anywhere between 10% and 100% of this amount, depending on the bank and the seller’s arrears status.
Things to remember
- Entering into a bank assisted sale or programme is voluntary. The seller is allowed to withdraw from the programme at any time without penalty. However, the benefits will be lost and unfortunately the seller will not be allowed to re-join the programme ever again.
- The appointed agent acts on behalf of the bank, in terms of the bank’s mandate with the seller.
- As the seller signed a mandate with the bank, the agent does not sign another mandate with the bank.
- Sellers who do not accept offers for the asking price agreed in the mandate, will not be permitted to stay on the programme.