How to avoid (or at least delay) repossession.

May 1, 2010 by Andrew John

In the present economic climate thousands if not millions people are in danger of losing their homes. It is therefore important to understand the steps you can take if you are facing repossession. Quick action is essential if you are to succeed and you must never simply give up and think that nothing can be done. Apart from losing your home you will seriously damage your credit rating making it extremely difficult to get credit to purchase another home in the future

There are a number of things which you can be done. However a word of warning. Beware of scammers. There are a number of scam merchants out there who will offer to save your home from repossession. Whether or not they can do so it will be a very expensive and probably only short term answer. Don't come to any agreement with them sign anything for taking proper professional advice. Your local Citizens Advice Bureau will be able to provide that without charge.

Top of the list of what you can do is negotiation with your mortgage lender.

.As soon as you realize you'll have trouble paying your mortgage -- ideally, before you’ve missed any payments – contact your lender. Now, more than ever, lenders are willing to negotiate with home loan borrowers, if only to reduce the number of repossessions they’re dealing with. (Some lenders are even taking the initiative and contacting at-risk borrowers themselves.)

Do it sooner rather than later. If you call soon, you may be able to work out a solution with your lender. But if you've already missed three or four payments, it may be too late, and the lender may insist on repossession.

The lender may accept partial payments for a few months (though you may have to agree to make up the difference later), accept a late payment, or agree to redo the terms of your loan.
What to say when you contact your lender. Here's what you should ask for:
• Forbearance. You make a reduced payment, or no payment, for an agreed-upon period of time. Usually, the lender requires you to make up the difference at a later time. The lender is most likely to agree to this if you can demonstrate that you will soon receive a bonus, tax refund, or some other extra cash.
• Loan reinstatement. You agree to make up your missed (or reduced) payments by a specific date.
• Loan modification. Your lender agrees to alter the terms of the loan so that you can better afford the payments. For example, the lender may agree to add your missed payments to your loan balance, to stretch out your loan over a longer term (which will lower your payments but result in more interest over the life of the loan), or to convert an adjustable rate to a fixed rate mortgage.

Getting Government Help
The government is currently discussing ways to help homeowners facing repossession (and thereby lessen the impact on the economy). Be aware of schemes available.

Filing for Bankruptcy
Filing for bankruptcy may help you keep your home, or at least get you out from under your mortgage. When you file, the repossession process is legally stopped. It can’t be reopened until your bankruptcy case closes or the lender gets court permission to proceed.

Selling Your Home

If you simply can't afford the house you own, the above options won't help. You will probably lose your home. But don't wait for your lender to make the first move. If your home has appreciated in value since you bought it, you may be able to sell it yourself. Again, contact your lender, who may let you stop making payments until the house is sold.
Ideally, the proceeds from the sale will cover your mortgage and selling costs. But if they won’t, ask your lender to consider what’s called a "short sale." That means the lender accepts the sale proceeds even if they’re less than the amount you owe.

How to reduce your mortgage payments to an affordable amount and avoid repossession.

It may be possible to reduce the payments on home loans without risking repossession. If like many people you have a number of loans secured on your home it may be possible to stop or reduce payment on some of them. This must however be a last resort and will only allow a temporary breathing space for you to either get your financial situation in order or sell your home. This is how it works.

The original loan you talk out to buy your home is called a ' first mortgage ' or sometimes first charge. The reason it is called first is because it gets paid first after a sale. It will have priority over any other mortgage or charge on your property. In the same way a second loan is paid second and after the first mortgage has been paid off. Third and any other loans are paid off in the same way according to their priority.

If a mortgage or loan secured on property is not paid the main remedy for the mortgage lender is to apply to the court for repossession and a court order that the property be sold. The lenders will then be repaid in order of priority from the sale proceeds once the costs of the sale (estate agents and solicitors fees) have been taken out. With falling property prices there will sometimes not the enough left after paying the costs of sale and the first mortgage for anything to be left to pay off money owed to second and subsequent lenders. If this can be shown to be the case there is little point in the second and third lenders forcing a sale of your property. It would be far better for them to wait in the hope that your financial situation will improve and you be able to start payments again. Thus it may well be possible for you to negotiate a payment holiday or reduced payments on second and subsequent mortgages.Until the last several years, banks would not make loans without good credit and a healthy chunk of equity to secure the loan. In the recent bubble years, however, banks were more willing to extend loans to homeowners without a measurable chunk of equity. Banks did this with the expectation that property values would rise fast enough to provide adequate security for the prospective loan. Also, liberal home appraisals were easy to come by -- creating equity on paper that might not have actually been there.

The real risk of possession actions is from the first lender and you must always keep up payments on your main and first mortgage.
Stopping payment on any loan even if not secured on your home has to be a last resort. County Court judgements and defaults all affect your credit rating and will do so for a number of years. However if by stopping payments on second and third loans you can pay the first this will be a strategy well worth considering.

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