DEFAULT ON BOND PAYMENTS
Defaulting on your Home Loan
It is an undisputable fact that many South Africans live above their means. Let us face it, we love the good life. With the worldwide recession at hand, high interest rates and job losses increasing, many South Africans have fallen behind with their home loan payments
People are losing their homes
Currently 1 200 homes are being repossessed by banks and other mortgage lenders each month. According to the Alliance Group the luxury property market is not being spared – there was a 240 percent increase in the number of loan defaults on home loans with balances exceeding R5 million.
What happens when you default on your bond payments?
If you miss one month’s payment the bank will send you an arrears letter and ask you to rectify the situation, usually within seven days. If you do not pay your arrears and fall into two months in arrears the bank will send you a Letter of Demand. The procedure differs from bank to bank and also depends on what is stipulated in your Loan Agreement. Some loan agreements allow banks to skip the step of sending you a letter of demand and start with legal action immediately.
In defence of the banks we must say that, in general, with this economic crisis being so fierce, they have been very accommodating in trying to assist clients who found themselves unable to keep up with their bond payments.
Ignore the Letter of Demand at your own peril
Should you ignore the letter of demand or simply can’t meet the demands and allow your home loan to go even further into arrears the bank will issue summons against you. This legal process in which the bank’s attorneys institute legal action against you is called foreclosure.
The process of foreclosure
If your outstanding home loan is up to R100 000 the matter can be heard in the Magistrate’s court. You will usually give consent for this limit to be exceeded (where the balance exceeds R100 000.) If you do not give consent the bank’s attorneys will have to institute legal action in the High Court.
Where a bond was registered in more than one name, like husband and wife, both parties will be served with a summons. The Sheriff of the court will serve the summons to you in person. If you are not present at the address you have chosen as your domicilium address the sheriff may affix a copy of the summons to the principal door of the domicilium. Your domicilium address is the one you provided the bank with when you took out the home loan and at which they may serve legal documents on you.
You have been served with a summons, now what?
You have five working days to respond from the day the summons was served on you, if done through a Magistrate’s court. If it takes place through the High Court you will have ten working days to respond.
This is your last opportunity to save your home, contact the bank’s attorney to try and make an arrangement to bring the arrears up to date. If you do not respond to the summons the bank will file an application for default judgement against you.
Sale in execution and the results thereof
When judgement has been obtained the property will be attached by the Sheriff and the bank will arrange for a sale in execution. By this stage you would have been blacklisted and your chances of getting credit is virtually zero.
If the house is sold for less than the outstanding amount you will remain responsible to pay back the outstanding amount to the bank, as well as all the legal costs incurred.
Don’t allow this to happen to you
We have not painted a pretty picture so far and it is indeed a very traumatic experience for anyone to go through. If you can prevent this from happening to you and your loved ones, you should. The first rule is to take action right from month one of going into arrears. Ignoring all the steps from the bank to contact you give them the message that you are not interested in saving your home.
Talk to your bank, there are a number of ways in which they may try to assist you, such as a payment holiday for three months, or paying only the interest for a number of months, or extending the term of your loan. You can obviously also try to sell your home before the bank does it for you.
Even in the worst circumstances it will be less stressful to play open cards with your creditors. You may be able to save your home, which is still the biggest investment most of us will make in a lifetime.