Some Facing Repossession Still Think Their Homes Are Worth More

Sometimes it’s best to sell up and walk away or lenders may chase you for 12 years

Today I got a call from a frantic seller who is facing repossession – I’ll call him Mr. B. He owns a house in North London, but in a not so great area where prices have been steadily depressed for some time.

He told me that he has a ‘repossession order’ for next week. The first thing I try to do when someone calls in a panic to tell me about a court possession order on their home is to try an find out exactly which stage the reposession / possession is at. Many people confuse a Court Order for Possession with a Bailiffs Warrant for Possession. The two things are very different.

If you just got the first one, you have some time to sort out your finances and a very good chance to avoid repossession.

However, if you just received the Bailiffs Warrant, then look out. That’s the nasty one, and much harder to deal with simply because time is no longer on your side.

Mr B. told me that his was a bailiffs warrant for early next week. That in itself is not impossible to deal with by any means, but sometimes seller’s own expectations are simply too high.

Mr B. has a house worth £300,000 – his valuation of course, and as a homeowner like all of us, this will be the top valuation. He owes £200,000 to his mortgage lender, sub-prime specialist GMac.

He told me that he would like to sell to avoid the bailiffs coming next week. That’s a pretty tall order, to find someone who is willing to put down cash in today’s climate to buy a house in a couple of days. That would mean exchanging contracts at least and then submitting a form n244 to the court to get the bailiffs warrant suspended.

Unfortunately Mr B. also has arrears of a substantial sum of £22,000. This means that he would have to sell for a minimum of £222,000. Except that he also has a second charge loan with Black Horse Lloyds for £13,000. Once fees and penalties and costs are added to this Mr B. is looking at a minimum of £240,000 just to clear his debts.

Mr B told me that he understood that he time was against him and so he is willing to sell at a discount – but absolutely no less than £280,000.

This represents a discount against the value of the house (his valuation, mind) of approx 6.5%.

Now house prices are falling at a pretty fast rate. Lenders are telling surveyors to downvalue properties, but Mr B. not only wants someone to pay 93.5% of his price, but also wants to buyer to pay cash (no choice if they are going to exchange before the bailiffs arrive) which would almost certainly have to include the arrears of £22,000 as deposit if GMac are going to accept a conditional exchange.

I suggested to Mr B that any cash buyer will be looking at a serious discount in return for doing this in such a short time frame and any buyer is going have difficulty in remortgaging above £250k because of the stamp duty threshold.

There had already been a buyer and Mr B had used this to get the court to suspend the possesion order. Courts usually give a second chance, and the Judge did, but then the buyer pulled out.

Real Cash buyers are few and far between right now and they have the pick of hundreds of properties at fire sale prices. Even an estate agent trying to sell a home to an normal owner occupier will admit that 10-20% is the minimum discount from asking price if you really need to sell right now (and that sale would take at least 8 weeks via the normal process). If Mr B. thinks that he will find one of these normal homebuyers, with cash in hand and who doesn’t know there are bargains to be had, then he really is kidding himself.

When prices were rising, a rise in the valuation of a property of 10-20% over a 2 to 3 year period was considered by many to be a god given right. Now that values are slipping in the reverse direction many owners are clinging to the notion of ‘equity’ in their homes as their ‘money’ but that equity simply no longer exists.

I tried to get Mr B to be realistic and outlined the alternatives to him as I see them.

Reality No 1 : Find the money to pay off the arrears in a reasonable time frame and use an N244 form to apply to the Court for more time to pay GMac. Not definite but in the current climate a strong chance the Court would insist that GMac accept terms and the Court would suspend the bailiff’s warrant.

Reality No 2 : Sell the house to a cash buyer for what he owes and simply walk away from the problem with NO DEBT. Sure, he loses his home, but he keeps control of his future and his future income. With no equity in his house and huge arrears of £22,000 and mounting, what exactly is there to lose?

Reality No 3 : He waits until the last possible moment to decide on one of the options above and instead the bailiffs arrive, take control of his house and sell it at auction. GMac will sell it right now for whatever they can get (local comparisons on Auction sales sites show similar properties worth £285,000 selling at auction in the last 6 weeks for £152,000!). Mr B. may well think that is the end of the affair, but GMac won’t forget. Nor will Black Horse Loans.

Black Horse actually are quite good at turning secured charges into unsecured loans if they think they will get nothing at auction, but GMac were jsut involved in demanding repayment from Woolworth’s so they are unlikely to care about Mr B’s feelings when they use their legal right to pursue him for up to 12 years for the difference between what he owes them today and what they get for the house at auction.

Which option do you think Mr B will go for?

It’s a shame but my experience tells me it will be No 3. Instead of being honest to himself about his situation I feel he will remain in denial. After all, the whole repossession process actually takes months to get the position that he is now in. Really Mr B. is lucky. Tens of thousand’s of people are now in negative equity and don’t even have the luxury to be able to sell to anyone for enough to cover their debts and walk away debt free.

The moral of the story?

Act Now to stop your repossession!

Like any difficult situation it also helps to deal with it earlier than later. Stay in control of your own future, by either finding the funds to pay the arrears and settle with your lender in Court, or sell your home and pay off your debts. The alternative is too scary to think about.

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Alistair Darling to Stop Rent Back Evictions

The Guardian reported an interesting article on sell and rent back and repossession this week:

Owen and Moira Martin are among the many British victims of companies offering controversial sale-and-rent-back deals. Their three-bedroom maisonette in Plymouth was repossessed last month because the company with which they had entered into an agreement never paid the mortgage, even though it had pocketed about £45,000 in fees from them.

Such horror stories have prompted the government to consult on how best to regulate the estimated 2,000 or so companies in the UK offering such schemes.

‘It’s been devastating,’ says Owen Martin, a supermarket worker, who has had to move into a privately rented two-bedroom flat with his wife. ‘We made sure the rent was paid, but we lost our home anyway because the company we sold to never paid the mortgage company.’

The Office of Fair Trading estimated in its recent report into the sector that some 50,000 sale-and-rent-back transactions had taken place. Operators offer to buy the property of someone facing repossession at a discount price, allowing the former mortgagee to remain in the property as a tenant. They usually also charge significant fees.

Read the full story at the Guardian website

http://www.guardian.co.uk/money/2008/nov/09/rent-back-evictions

Now There’s Even a House Prices Crash Calculator

After years of talking up the property boom and the ‘you can’t lose with property’ articles in the media, the newspapers are now full of doom and gloom about the future of UK house prices.

The reality may be that a housing market depression may be caused by nothing more than the fact that we all start to believe that house prices will fall, we don’t put our houses on the market and we don’t try to move home.

This means that house prices will fall and those affected most will not be those who can ride out the storm and stay put in their homes, but those who are facing repossession.

This Is Money the website arm of the London Evening Standard have even published a price crash calculator so that if you aren’t scared enough already, you can truly frighten yourself into worrying about what your house will be worth if prices fall the same way they did in 1992!

The threat of negative equity however is now a very real one and millions of people will find it impossible to refinance their mortgages and will be forced onto their lenders’ top standard variable rates.

Stop Repossessions Org UK Sees Rise in Negative Equity Repossessions

As 2008 marches on and the global and economic situation looks ever more bleak, so are the tales we are hearing from UK homeowners facing repossession.

Back in 2007 a rough estimate would be that 70% of those people who contacted us by phone or email had some difficulties with their mortgage repayments, were in arrears but were also in a position to:

a) Repay the arrears over a given period either by direct agreement with their mortgage lenders or by a court judgement.

b) Remortgage with a new lender in order to get a fresh start with a new payment record appearing on their credit score

Fast forward and now it is rare that we are hearing from people who have enough extra monthly income to repay their arrears over time and many lenders (especially the sub prime) are refusing to accept repayment plans to pay off morgage arrears.

The majority of people contacting us are now also at the start of the negative equity trap.

The true and actual cost of their borrowings, (which consists not just of the amount borrowed but also the huge penalties, legal and court fees and Early Redemption Penalties), have risen dramatically, whilst the value of their homes is in many cases starting to stagnate, if not fall.

A homeowner who previously remortgaged their £200,000 home with a 90% mortgage (£180,000) and who has either added a secured loan (say £10,000 – new total £190,000) or had a County Court Judgement for unpaid credit card bills of a similar amount, and who has an early redemption penalty of say £7,000, may be mortgaged to £197,000.

One missed mortgage payment and not only can the interest rate rise dramatically so that monthly costs are hugely increased, but legal fees and punishing penalty fees will be also be added.

Suddenly we could be looking at redemption costs of over £200,000.

Sell the house?

Not always possible.

Estate agents will charge a minimum of 1%, more if you go with multiple agents. That’s at lease £2000. Legal fees and the Government’s ridiculous HIPs pack will add another £1500.

It’s now going to cost £3,500 to sell the home and get nothing in return.

But it doesn’t stop there.

If you remortgaged before the Northern Rock crisis hit in September 2007, then the chances are that your lender was giving signals to surveyors to over value properties.

The market is always rising so why not let them over value your home and then lend you more money in return for more profit?

By the time you may be in trouble house prices should have risen by enough to bring down your mortgage level to less than 100% – just in case they need to repossess.

But the reality is that homes are now only selling if the price is right.

Now it’s a buyer’s market again.

Houses which comfortably sold for £200,000 back in 2007 are now sticking in agent’s windows at £189,000.

Suddenly it could cost you as much as £10-20,000 to buy your way out of repossession.

But who is going to lend you the money to pay the costs?

It is not going to happen.

If you do have equity in your home then you do have options to avoid repossession find out here

Does Alistair Darling Want You To Be Repossessed?

Maybe the Government, along with the usual middle class do gooders at the Citizens Advice Bureau (CAB) and Shelter actually want you to be repossessed and lose your home?

Surely, that can’t be right?

Yet the Scottish newspaper the Sunday Herald Reports today the following:

“Prompted by concerns raised by Citizens Advice, Shelter and the Council of Mortgage Lenders, chancellor Alistair Darling announced last week that he has asked the Office of Fair Trading to investigate potential consumer detriment in the sale-and-leaseback market.

A spokeswoman for the Council of Mortgage Lenders said: “While we welcome the review, it is disappointing that no immediate action will be taken to regulate sale-and-leaseback schemes.

“Homeowners in difficulty may currently be considering selling their property through these schemes at a discounted value, without an independent valuation of their home, and with no real security of tenure.”

Whilst it is true that there are some rogue rent back traders out there (especially those offering to pay 100% of market value who in reality keep at least 40% back for many years), this Government is expert in knee jerk politics.

So many of the laws that have been passed since Labour came into power seem to be a reaction to scare stories in the tabloids.

The reality of the sell and rent back scenario is that it gives homeowners a last resort to keep their homes when all else has failed.

If the Government legislate against that last resort because a powerful lobby of middle class people feel that that they need to legislate against other people having the right to sell their homes for less than market value in order to stay in them, the outcome (like that of many of their policies) will be exactly the opposite.

CAB and Shelter may talk the talk but they won’t offer you a home when you are repossessed and evicted.

As for the CML (Council of Mortgage Lenders) – well who do you think supplies the financing and re-mortgaging for sell and rent back companies?

Is Alistair Darling (or any other of the wealthy Islington-ite Labour Government) going to provide you with a nice Council House or put you to the top of the housing list when you are repossessed?

I think we all know the answer to that one.

If you are thinking of selling and renting back make sure that you do the research and ask for references from other sellers when dealing with a rent back buyer.

More Homeowners Face ReMortgage Hell as Lenders Pull 100% loans

Homeowners facing finance problems may be a step closer to repossession as mortgage lenders pull their 100% loans.Cheltenham & Gloucester Cut 100% mortgages

This means that for those who need to remortgage soon, not only are rising interest rates from sub prime lenders and falling or static house prices an issue, but they may now find that they are unable to remortgage to the full value to pay off their current mortgage with an existing lender.

If a property worth £100,000 was 100% mortgaged 2 years ago and has fallen in value even by a few percent, then this means that a new mortgage may only cover around £88,000 towards paying off the existing mortgage.

The result?

Many will be unable to remortgage, will fall into the dreaded negative equity not seen since the early 90s, and will be forced onto so-called standard interest rates with their current lender.

With some sub prime lenders this is 10% or more.

This news in from The Guardian online:

“Cheltenham & Gloucester will tell homebuyers today that they must put down a minimum deposit of 10% if they want one of its mortgages, as the clampdown on lending gathers pace. Meanwhile, Royal Bank of Scotland and NatWest are withdrawing from offering mortgages for more than 95% of a property’s value.

C&G – owned by Lloyds TSB – is one of the biggest mortgage providers to rein in its lending in response to the credit crunch. The change means that a typical first-time buyer in London will have to stump up almost £25,000 to obtain one of the company’s home loans.

RBS/NatWest has already pulled out of offering mortgages above 95% through brokers; after March 7 this will also apply to branch-based home loan applications.”

Read the full article here

Real Life Repossession Cases – Mrs B vs Kensington Mortgages

In order to help other home owners who are facing repossession, we are going to start posting actual cases.

These will be based on situations faced by people who have contacted us but of course, names and identifying information will remain hidden.

Case #1

Mrs. B
Location: Wakefield
Value of Home: approx £500,000
Total Mortgage: £108,000
Lender: Kensington
Second Charge: None
Loan Arrears: £24,000

Mrs B contacted us after receiving a Bailiff’s Warrant for Possession from her local county court on behalf of her lender, Kensington.

She had followed standard procedure to ask the court to allow her to pay her substantial arrears over 2 months. For this she used the Court Form N244. Because her court was busy the judge could only hear her case late on Friday morning, repossession by bailiffs was set to take place at 11am on Monday.

Normally, if a homeowner asks the court to help agree a repayment plan with their lender the judge will recommend that the lender accepts the plan and will suspend the repossession.

However, the judge can only suggest this to the lender.

In Mrs B’s case, the judge took on board the extenuating circumstances (serious illness in the family, coupled with a very low mortgage compared to property value and no other lenders involved) and urged the lender’s solicitors to ask them to accept the payment of £24,000 arrears over a 2 month period.

This is a large sum of money, but also a very short repayment period for the lender to agree to, and Mrs B was able to show that she could make these payments.

However, the lender refused the Judge’s recommendation and stated that only arrears payment in full before the bailiffs arrived on Monday would be acceptable. This was lunch time on Friday.

Unfortunately, Mrs B didn’t contact us until late afternoon on Friday.

If she had contacted us earlier we would have been able to arrange a cash buyer for her home with an option to buy it back later. Unfortunately, there was not enough time to even get ID documents to a solicitor before the repossesion was to take place on Monday morning.

To make matters worse, Mrs B had made a payment of £5,000 on the Friday morning, which instead of being money she and her family could use to find rented accommodation after the bailiffs repossessed her home, would only slightly reduce the overall amount owed to her lender, especially once the lender had added on its legal fees, penalties and costs of selling her home at auction, probably with a very low reserve just to cover their costs.

If you even think you might be facing a similar situation in the near future, seek advice now, because like Mrs B, you might believe that just paying arrears when you go to court will be enough to stop your lender from repossessing your home.

Increasingly, lenders are unwilling to accept arrears repayment arrangements because they fear that by not repossessing today and getting their money back, that your property may not be worth enough to cover your mortgage and loans if there is a property crash.

For more information on the repossession process visit our website Stop Repossessions Org