How long after missing a mortgage payment does a house repossess? Financial advisor says it doesn’t have to come to this
As the Reserve Bank of Australia warns of further interest rate hikes in the future, there are fears that overstretched borrowers may pay off their mortgages.
It’s a scary prospect, but Lody Stewart, a financial adviser who works with Financial Counseling Australia, says there are ways to get out of trouble.
But before we get into the details, let’s go through the three stages of a bank repossessing a home.
What is the process for bank repossession of your home?
The process for a bank to restate a home due to missed mortgage payments involves three basic steps.
Here’s how Money Smart, a federal government website set up to help Australians struggling with money, explains it:
1) Notice of defect
First, the bank must issue a notice of default.
This notice gives you 30 days to make any missed payments and outstanding refunds.
2) Declaration of complaint
If those 30 days pass and you haven’t made the refunds, your bank may send what’s called a claim or summons.
This marks the start of the bank’s legal action against you to claim the remaining amount on your home loan.
You can file a defense or file a dispute with a dispute resolution system at this point, but the time you have to do so depends on the state or territory you are in.
If you do nothing, the bank can repossess your home.
If the bank gets a court order to repossess your home, you will receive a notice to vacate or a letter from the sheriff.
Then a sheriff will come to your house, evict you, and change the locks.
But having trouble making your mortgage payments doesn’t have to end in eviction.
Here’s how to navigate the situation.
What can you do if you know you’re going to miss a refund?
Ms Stewart says you should call a financial adviser free of charge by calling the National Debt Helpline on 1800 007 007.
She says you need to figure out how much you can pay.
“Review your income and expenses and prepare a budget, as this will let you know how much you can reasonably afford to allocate to your repayments.
“Look for ways to reduce other expenses/expenses to free up money to pay your home loan.
And be sure to call your bank.
“If you have missed a payment, are unable to repay in full, or believe you may miss a payment, it is essential that you call your lender – without delay – to seek hardship assistance and discuss of your options,” Ms. Stewart said.
“The sooner you work on these options, the better the outcome.”
How long do banks wait to send a notice of default?
“There are no hard and fast rules,” Ms Stewart said.
Banks generally wait for a customer to be at least 60 days lateshe says.
And a default won’t be listed on your credit report for at least 60 days.
What should I do if I receive a defect notice?
Determine when it should expire.
At this point, it is still possible to prevent things from going any further.
“The notice of defect must give the consumer at least 30 days to correct the defect,” Ms Stewart said.
“Enforcement proceedings can only begin if the default notification period has expired and the consumer has not corrected the defect.”
You can discuss your situation with a financial adviser by calling the National Debt Helpline on 1800 007 007.
What are your options if you receive a Notice of Default?
Here are some of your options:
- Develop a hardship support agreement with your bank
- Finding a way to make current repayments – this may mean asking for a raise at work, taking on extra work, or renting a room for extra income
- Move out, rent out your whole house, and live somewhere that costs less than your mortgage payments
- Sell your house
- Let the bank repossess your home
How can I get help in case of difficulties?
The hardship help you get will depend on your situation, but your bank may agree to temporarily reduce or suspend your payments until you can resume your normal repayments.
To arrange this, you will need to contact your bank.
“Ask to speak to the hardship department and explain that you are in financial difficulty,” Ms Stewart said.
“The Difficulty Service staff will explain your options and offer a difficulty variant.”
Ms. Stewart says you should inquire about the following options, if they are right for you:
- pay a reduced amount for a few months until your situation improves
- extend the term of the mortgage to add three months of overdue payments and interest at the end of the loan
- temporarily stop paying your mortgage until things improve
- pay interest only for now
- being offered a modified payment plan
“But don’t agree to a repayment plan that you know you can’t afford,” Ms Stewart said.
“If you break the repayment agreement, it can make it more difficult to negotiate another payment plan in the future.”
And be sure to keep records of who you talked to and when.
What if I can’t get help with difficulties?
“If you cannot reach an agreement with your lender and the notice of default is about to expire or has expired, file a dispute with the Australian Financial Complaints Authority (AFCA) immediately,” said Ms. Stewart.
“Your lender cannot pursue any further enforcement proceedings while the matter is with the AFCA and still unresolved.
“During this period, continue to make the repayments you can afford – this will prevent you from falling further behind and will help demonstrate to the AFCA and the lender that the amount you are offering is affordable.”
What if the bank sells the house for less than you owe?
You will still have to repay the full amount of the loan.
What if the bank sells your house for more than you owe?
You keep what’s left.
But you might need that leftover money to pay for additional legal fees and unpaid fees like council fees or corporation fees that you’ll have to pay.
Can the bank force you to sell your other assets?
It can only make you sell what’s attached to the loan, Ms Stewart said.
“The exception is if this case ends in a bankruptcy process,” she said.
If your house is repossessed, does that mean you are bankrupt?
‘You are only bankrupt if you have declared bankruptcy or been involuntarily bankrupted by a creditor,’ Ms Stewart said.
“Your mortgage lender doesn’t have to bankrupt you to repossess your home.
“Bankruptcy will obviously affect your credit rating and therefore your ability to obtain credit in the future.”
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