MONEY CLINIC | I'm struggling to keep up with my home loan. What should I do?

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As a first step, you are advised to contact your bank as soon as you know you will have financial problems in future.
As a first step, you are advised to contact your bank as soon as you know you will have financial problems in future.
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Are you struggling to keep up with payments on your home loan or facing possible foreclosure or repossession? 

PJ Veldhuizen, a commercial litigation specialist and consultant from boutique law firm Reynolds Attorneys gives some advice to struggling property owners. 

Fortunately, it is in neither your nor the bank's interest to repossess a home, and all efforts should be made to find a viable payment solution through mediation efforts. A repossession is a last resort.

As a first step, you are advised to contact your bank as soon as you know you will have financial issues looming in the future.

Under lockdown, a large number of South Africans lost their jobs, were retrenched, or received a pay cut. So, planning ahead is a must, and a call to a creditor to negotiate terms is essential.

Once the bank is aware of your situation, they can work with you to reach new terms, such as:

  • Ring-fencing old debt
  • Extending the terms of the mortgage 
  • Allowing you to pay a reduced percentage of your instalments for a set period 
  • Restructuring of the loan
  • Helping you sell your property through "quick sale" marketing.

That said, the loan needs to be paid back at some point, so these measures are not in perpetuity, and the property will eventually be sold in execution if you cannot settle the loan. This will also mean that your credit record will be compromised, which will affect your ability to access further credit in the future and the ability to rent an alternative property.

It is wise to be proactive and sell your home, either via an estate agent or an auction process, before the bank gets involved. This allows you to put the house on the market at a fair market price. If you reach the point of a forced-sale auction, your property may sell for less than its value, which leaves you in a position where you are responsible for any balance remaining after the sale. This should be avoided if at all possible. 

In recent years, there have been changes to how banks can sell homes if they are foreclosed. This follows a claim made by Lungelo Lethu Human Rights Foundation against the major banks for R60 billion. It claims that its clients’ homes were put on the market up to 17% less than their value, resulting in unjust sales. While the case continues, new steps in the form of R 36A of the Uniform Rules of Court have been put in place that includes introducing a reserve price by the courts for a sale in execution.

This means that the latter sets a minimum price for the sale of the house on auction (although there are no guidelines to how this price is determined); the bank does not set the price.

While this provides some protection for homeowners, there are still many grey areas about its implementation. This includes the reserve price, not considering other factors such as transfer costs, holding or insurance fees, sheriff fees, legal practitioners’ fees, etc. The reserve price is usually set in line with the property's market value or forced sale value, which somewhat paradoxically makes it difficult to sell at an auction.

If the property does not sell at the court set reserve price, the matter then returns back to court for a reconsideration of the price. This is detrimental to both the property owner and the creditor as legal costs continue to mount. The property itself could deteriorate during that time. There could also be a lack of interest in the property if it’s on the market for too long. 

With the true extent and length of the pandemic still unknown, it is anticipated that more property owners will come into financial difficulty and need to take steps to manage their financial situation.

The banks came to the party in the second quarter of last year with payment holidays, but that could not last forever. While current restrictions have been somewhat modified, there are still rising cases of Covid-19 in certain provinces and specific sectors, such as retail, hospitality and tourism, and their extensive supply chains, will remain muted. There are also those in the areas affected by the riots to consider. 

People in these segments are at a high risk of compromising their financial standing and will likely need to cut their budgets to make ends meet. If they can’t find ways to meet their creditors’ obligations they will have little to no choice but to make the hard decision to engage their banks, or better yet, sell their home and move to a smaller property, or rent. They could also make a plan to pay back some of their debt by selling some of their possessions, or even by starting a side-hustle to make some extra money (something that 38% of people have done).

The key is to engage with your bank early. A court process is expensive and lengthy, and this has been amplified by the fact that the courts have been overburdened due to Covid-19, having been closed for a few months last year and being open some days and others not. 

All costs are for the defendant's pocket, which makes this a very expensive route to take. Besides, if an individual takes on a company, it usually will go in the latter's favour as they have exponentially more financial means than an individual and, let's face it, the agreements signed give them the rights to recover the monies they have lent you – they also have shareholders to answer to and are not charitable institutions.

If you find yourself in financially straitened times and cannot negotiate directly with the credit provider, finding a skilled, accredited and trained dispute resolution specialist such as at Reynolds Attorneys is key to managing this process.  

Questions may be edited for brevity and clarity.

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