26 Jul Early action saves your home
By Andrea Milner – NZ Herald
Fiscally pressured property owners are losing their homes in bank fire sales because they leave it too late to fight back. Terralink figures show April mortgagee sales reached a new peak of 251, up from 201 in March and 90 a year ago. The best time to talk to the bank is before you default on a payment. Banks have an incentive to work with a homeowner to prevent a forced sale, says financial adviser Kathy Jarrett, because it’s more expensive to get rid of them. Lawyer Alistair Hall says options include negotiating a mortgage “holiday,” switching to interest-only or capitalising interest onto the principle. Changing payment terms can also give a window to sell privately, securing a better price. People who borrowed a high proportion of their property’s value during the height of the last property boom have the fewest options, says mortgage broker Kris Pedersen. “The market has dropped so effectively these cases are 110 per cent geared. The agents take their commission, and often they’re six months in arrears by the time of the mortgagee auction, so it could take 120 per cent of the property’s worth to clear the debts.”
But homeowners with good equity hit by an income drop can hang on by refinancing, or opt to sell themselves before the bank puts on the pressure. If the mortgage is in arrears, a family member may lend enough to keep up payments until the home can be sold privately and the loan repaid from the equity. Darryl Evans, chief executive of Mangere Budgeting Service, says people in debt often “ignore the mail”, not taking action because they’re embarrassed. But there are many reasons an owner may battle to keep the roof overhead, from redundancy to relationship break-ups. Asking a budget or financial adviser to help puts the homeowner in a stronger position. An adviser can negotiate on the homeowner’s behalf to freeze action against them. Evans advises owners to think of ways to increase their incomes, such as boarding students from language schools. One family who had arrears sorted their belongings and sold things they weren’t using on Trade Me, raising most of the amount needed to clear the debt. Andrew Lawson of Mangere Community Law Centre says another reason to tackle potential problems early is that the financial hardship provisions of the Credit Contracts Act can sometimes help homeowners through temporary setbacks. Barrister Paul Dale says homeowners may have other legal remedies where there’s a serious issue to be tried, but generally it’s a matter of negotiation. He urges banks to consider circumstances sympathetically because “the social cost of putting people on the street is enormous”.
How to save your home from becoming a mortgagee sale statistic
Duane and Kylie* own a home worth $600,000 and had a mortgage with ANZ of $256,000.
Duane ran a building business and got caught when a major customer went bust, leaving an unpaid bill of $65,000. This caused cash flow problems, and money became tight.
Duane laid off his three staff and tried to keep going.
Unfortunately, the couple stopped meeting mortgage payments and did not talk to ANZ. They didn’t tell their mortgage broker Jeff Royle about their predicament until the final Property Law Act notice arrived, advising that unless ANZ received full repayment of the loan by a specified date, mortgagee sale proceedings would start.
“The first thing I did was contact ANZ and get its side of events so I could formulate a plan,” says Royle. “It also meant that ANZ knew that there was someone trying to rectify the situation.”
Even though the mortgage was less than half the house’s value, no other bank would refinance it with a Property Law Act notice in force. That left three options. The couple could sell and downsize or rent for a while; they could find a family member to help out; or try to find a finance company prepared to deal with them.
Duane found work in Australia and Royle brokered a 12-month facility with a local finance company. By capitalising 50 per cent of the mortgage payments, the couple are able to service the new loan. ANZ was paid in full and Duane is still in Australia sending money back.
“This was a typical case of a person who has always paid their way and suddenly got into trouble,” Royle says. “I see this almost every day.”
His advises anyone who thinks they might be heading for trouble to contact their lender immediately and put in place a plan, such as paying interest-only for a while, taking a payment “holiday” or restructuring debts. “Lenders are willing to listen, what they really don’t like is silence – they always fear the worst.”
* Surnames withheld by request.