Can the Bank Repossess my House?
It sounds like something out of a particularly depressing novel. Your life’s been a bit tough recently, you’re struggling with your finances, and then, just as you’re getting back on your feet, you get a notice from the bank informing you that your house is being repossessed to make up for your financial shortfalls. As horrible as all this seems, it’s not just something you’ll find in a bad melodrama – it can actually happen! The real world is replete with instances of down-on-their-luck people being subjected to this exact scenario. Hearing about it is scary, but it also makes the rest of us ask a couple of questions, for example – Can something like this happen to me? Can the bank just repossess my house? And what can you do to prevent it?
If you put your home up as collateral with the bank when you took out your loan, then yes, the bank can repossess your house if you don’t make your payments.
In other words, when you take out very large loans, the lender will usually insist that you put up some sort of collateral that they can sell in case you default on your payments.
When it comes to home loans, the collateral is usually the property itself. This means that, from the very beginning, you are agreeing to the fact that the bank may repossess your house and sell it off if you are not able to repay your loan.
So, does this mean that you should just avoid secured loans (loans involving collateral)? And do banks begin repossession procedures from the moment you miss a payment?
Not exactly.
When Can a Bank Repossess Your House?
A bank will normally begin the process of foreclosure as a last resort once all other options have been tried.
Normally, this process can begin after about 3 months of missed payments, but it’s usually within the bank’s best interests to avoid this step and the actual proceedings may occur much later.
The foreclosure procedure is quite complicated and quite costly for the lender, so it would be far more profitable for them to receive all of your payments as they were determined in your original agreement, rather than simply repossessing your home.
By contrast, if you did not put your house up as collateral when you received the loan, the bank may not just repossess it when you fail to make payments. That said, they will be able to take you to court in order to get their funds back by other means, which may include the establishment of a lien on assets such as your home.
What Happens if a Bank Repossesses Your House?
If no alternative to foreclosure is found, the bank will begin legal proceedings to auction off your house and evict you from the premises.
In such scenarios, the court will usually set a reserve price for the sale which will vary depending on the specifics of the situation.
If the sale of the house covers your outstanding debts and the various legal fees that have been incurred, the matter may be closed. However, if the amount does not cover these costs, you will still be responsible for making up the shortfall.
According to Section 129 of the National Credit Act, the debtor may remedy the issue at any point before the agreement has been cancelled by paying off any outstanding debts. If this is done in time, you may be able to regain possession of the property.
How can I Legally Stop Paying a Bond?
Let’s assume that you intend to sell your property before you’ve settled your existing bond. Such cancellation is possible, but there are certain rules and restrictions that may apply –
- 90 Day Notice – You must present the bank with 90 days’ written notice regarding the cancellation. This does not mean that the bond may be cancelled after 90 days, it simply represents your stated intent and will need to be resent if your property does not sell in that time.
- Extra Fees – Banks tend to charge early cancellation fees in these circumstances.
- Extra Paperwork – Cancelling a bond is a complex process that takes a fair amount of time and effort. It’s a good idea to hire a transferring attorney to handle the hard stuff for you.
- Final Figures – Bonds are actually cancelled once final figures have been requested by the conveyancer.
How do you Prevent Your Home from Being Repossessed?
If you find yourself in a financially unstable position, this article may be doing little to quell your fears over a potential foreclosure. If that’s the case, let’s look at some methods that can help you escape repossession –
Preventing Foreclosure
| Budgeting – The kind of instability that we’re talking about normally doesn’t just appear overnight. It builds up over months or even years and can have terrible consequences when it becomes too bad to ignore. For this reason, it’s important that you practice good financial planning, even if you aren’t in trouble right now. Instead of being reactive and trying to deal with the bank when they come to your home, try being proactive and prevent your finances from reaching that point. It’s never too late to get your accounts in order, so don’t assume this point won’t apply to you if you’re already facing a repossession. |
| Communicate with the Bank – People tend to assume that the banks enjoy the repossession process. This just isn’t the case. They want to avoid it as much as you do and they have many resources available which can help you do just that. If you find yourself in a tight spot, don’t just ignore the calls and emails that are coming in, instead, contact your bank and explain the situation to them. They’ll probably be able to provide a lot of helpful tips which may just prevent foreclosure. |
| Sell the Property Yourself – If repossession can’t be avoided, it may be wiser to sell your home on the open market rather than letting the bank put it up for auction themselves. This can often net you more money for the property than you would’ve otherwise received while also allowing you to fully pay off your debts. Some banks may even help you to make the sale if you apprise them of the situation. |
| Get a Debt Review – If you can’t convince the bank to give you a break, you may want to get a debt review. This will allow a counsellor to look over your finances and make a deal with the bank on your behalf. |
| Appeal the Foreclosure – If all else fails, you can try to appeal to the courts in order to stall or overturn your foreclosure. This involves a huge amount of time and effort to accomplish successfully, but it may give you the opportunity you need to get your finances squared away. |
At the end of the day, communication is key when it comes to solving bond repayment issues. If you find yourself falling behind on payments, talk to your bank, work out a plan, and make changes in your personal finances before the situation spirals out of control.
In Conclusion – Can the Bank Repossess your House and How do you Prevent it?
If you’ve put your house up as collateral for a loan with the bank, they will be able to repossess it and auction it off if you are unable to make your payments.
That said, this move is generally seen as a last resort for lenders and it is likely that they will attempt to contact you to figure out an alternative solution before things get to this stage.
It is also important to note that banks do not begin the repossession process from the moment you miss one payment. They will usually only start things off from the 3-month mark and may even delay it further if you are able to contact them and work something else out.
If you did not put your house up as collateral, the bank will not be able to simply repossess and auction it, however, if your debts are ignored for too long, they may eventually sue you and seek their remuneration from a court order.
Once repossession officially takes place, the bank will attempt to evict you from the premises and auction off the property in order to make their money back. A court of law will usually determine a reserve price for the sale.
If you are able to pay back the money that you owe before the agreement has been cancelled, you should be able to regain possession of the property.
Due to the costliness of this process, it is advisable that you do everything to prevent foreclosure rather than deal with it when it becomes an issue.
Some helpful tips for doing this include –
- Creating a budget to control your finances
- Communicating any issues with the bank and seeking alternative repayment methods
- Selling the property yourself rather than letting it be auctioned off
- Getting a debt review
If none of these options help, you may still be able to appeal the foreclosure in court.
Disclaimer Finance101: All of our posts are for research purposes only. Finance 101 aims to assist its readers with useful information on the laws of our country that can guide you to make financial decisions that will enable you to become more financially independent in the future. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law & finance-related queries. Should you require specific legal/financial advice we advise you to get in touch with a qualified financial expert.
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