Battling to pay your bond?
Category Newsletter: Lead Article
Being in the position where you can no longer afford the monthly repayments on your bond is a terrible fate. Nobody wants to default on their bond but sometimes it happens that people simply can't afford to keep up the payments. "And with the interest rate back at a pre-pandemic high, soaring inflation and the rising cost of living, people's personal finances are taking strain," says Michelle Cohen, Principal at Leapfrog Johannesburg North East.
It's a situation laden with fear, anxiety and even embarrassment, but acting swiftly is key to dealing with a distressed property and mitigating the impact of the situation, Cohen explains. Distressed is the term used to refer to a property where the homeowner can no longer afford the bond repayment and has consistently missed payments - the property is then "distressed".
Cohen strongly advises that anybody who finds themself in this position, gets in touch with both their bank and a trusted property advisor as soon as possible.
"What you don't want to do is wait idly until the bank takes legal action. The moment you realise you are going to default on your bond repayment, you need to notify the bank and make contact with a property advisor to get the property on the market as soon as possible," Cohen explains.
Simply, you want to sell the property as quickly as possible to recover costs and settle with the bank before they take the legal steps that put the foreclosure process into motion. "Working with a property advisor will ensure the property is priced right for the market, which helps ensure a faster sale and may in turn help to minimise losses," Cohen shares.
In cases where there is equity in the bond, selling quickly means there is a chance of covering both the outstanding bond and other debt with the proceeds from the sale.
Don't delay
The most responsible thing to do in a situation like this is to act as soon as possible. Cohen explains that it is generally understood that if the bondholder is more than two months in arrears it is unlikely that they will be able to recover and pay the outstanding debt, which is why the legal process of repossessing the property is typically started after month two of non-payment.
"In a stressful situation like this it is far better to sell of your own accord than being forced to do so. A property advisor will help you sell the property at as close to its market value as possible," Cohen says. What's more, property advisors can also draw on their network of attorneys and professional advisors to negotiate a more favourable deal for you where possible.
Best of a bad situation
Even the bank wants to find a workable solution for recovering the loan, Cohen believes, and they may consider extending the loan period - if you act swiftly and opt for full transparency. Depending on individual circumstances, the banks may even be prepared to fe-finance the debt that remains after the sale of the property, over an extended period of time, without blacklisting you.
"The best advice? Act as soon as you sense you may be in trouble, and then work swiftly and take a 'cut your losses' approach and do whatever it takes to avoid being blacklisted," Cohen concludes.
Author: Leapfrog Property Group
