y’s society will have differing attitudes to debt
and debt repayment. There will always be those individual’s who
take a very =EBrelaxed’ attitude to debt and debt repayment,
however the vast majority will take the matter very seriously
and in the case of property ownership, they will take any
realistic action to make their mortgage repayments on time.
Unfortunately there will always be situations out of the
control of even the most conscientious borrower.
Individuals fall into arrears on their mortgage for many
different reasons; accident or sickness, redundancy or
unemployment, death of a spouse, insolvency or hikes in
mortgage interest rates to name just a few. The most common
reason for property repossession in current times can be
attributed to general high levels of consumer debt. This comes
in two forms, secured and unsecured debt. Whether this is due
to the borrower making payments on their unsecured debts in
priority over their mortgage or a level of mortgage borrowing
taken out which their income cannot afford.
But how can a few missed payments on the mortgage lead to
property repossession?
Very rarely will a property be repossessed over an isolated
incident of a couple of missed payments. The advice given to
borrowers who fall behind on their mortgage repayments is to
contact their lender at the earliest possible opportunity.
Speedy action on the part of the borrower can often reduce the
potential arrears and put them on the road to recovery.
Delaying action is likely to result in increased mortgage
arrears and ultimately could lead to property repossession.
Borrowers have a number of options available to them in the
early stages of mortgage arrears. These will include:
* Capitalising the arrears;
* Coming to an agreement with the lender to make good the
missed payments over an agreed period of time. This is usually
only a viable solution if the borrower can afford to increase
the monthly mortgage payments;
* Paying the mortgage on an interest only basis for an agreed
period. Of course this will only be an option open to those
paying the mortgage on a repayment basis. This method is viewed
as an immediate short term solution to relieve the immediate
pressure as the arrears will still be outstanding;
* Increasing the term of the mortgage. This will take the
effect of reducing the monthly payments, thus making them more
affordable;
* Downsizing to a cheaper property. This could allow the
borrower to use the cash raised to settle the arrears. This of
course is not always a viable option as it is dependant on the
seller finding a buyer for the property and so on;
* Surrendering an investment policy – such as an endowment or
an ISA attached to the mortgage. Surrendering such policies
will usually result in a significant loss to the investor as
very rarely will he or she receive the full value of the
policy. Consideration must then be given as to how the mortgage
will be repaid at the end of the term with no repayment vehicle;
But what happens if an agreement with a lender cannot be made,
or a solution found to clearing the arrears?
Handing back the keys to the lender is rarely a good idea. The
borrower will still be responsible for paying the mortgage
until the lender has sold the property. This will lead to more
arrears and arrears charges being made. It must also be
understood that prices obtained for repossessed properties will
usually less than the market value – The lenders primary aim in
this case is to sell the property as quickly as possible in
order to recoup their funds.
If an arrangement is not made and the arrears situation
escalates then it is highly likely that the lender will seek a
legal remedy through the County Courts. The borrower will first
be notified of this through a letter from the lender’s
solicitor.
In order for the lender to take possession of a property, it is
first necessary to petition the County Court for a possession
order. The borrower will usually receive a court date for the
hearing. Before the County Court will even consider granting a
possession order it first has to be satisfied that every avenue
has been explored by the lender and borrower. The County Court
will take the view that possession should be the very last
resort.
The County Court may take one of three course of action:
* It can grant an outright possession order. This will enable
the lender to take possession of the property which will
usually happen within 28 days;
* It can grant a suspended possession order. This will place an
obligation on the borrower to make payments in accordance with
the court’s decision, with the suspended possession order
enforceable if the borrower fails to keep up the repayments.
* It can adjourn the case until a later time.
Once a possession order has been granted the court will also
decide a date on which this order is enforceable. The lender
can then take steps to take possession of the property.
Once the lender has obtained vacant possession of the property,
they will then follow there possession procedures which will
include; changing the locks, disconnecting utility services,
taking gas and electric meters and informing the local police
of the possession.
Even after the property repossession, the borrower can still
redeem the mortgage up until the point of sale. This can
sometimes happen if the borrower has been organising a
remortgage during this process.
In the event of the lender losing money on the proceeds of the
sale, it may take further action if it believes the borrower
has the financial means to make good the loss.
About The Author: Chris Copper is a finance writer and works as
the head of property repossession and mortgage arrears for
http://www.adderson.com
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