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How to avoid a repo nightmare

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IF you're a homeowner struggling to repay your mortgage, watch out — warnings that repossessions are about to soar keep coming.

Last week, the ratings agency Fitch warned that house repossessions would increase in Ireland. In recent weeks, some of the country's top banks, including AIB and Ulster Bank, have said they will step up repossessions.

A new law, which overturned a High Court ruling in 2011 blocking repossessions, has kicked in. The writing is on the wall if you're struggling to repay your mortgage. It's now a lot easier to lose your home than it has been over the last two years.

Banks, however, will usually only repossess as a last resort because of the costs involved.

And even if you can't meet your mortgage repayments, it is still possible to keep the bank from taking your home from you — as long as you take the right steps.

 

DON'T BE AN OSTRICH

If you're struggling to repay your mortgage, don't bury your head in the sand — otherwise you could lose any chance of holding onto your home. Rather, it is best to engage with your lender as soon as you anticipate or run into problems repaying your mortgage.

"At all costs, don't meet the definition of 'uncooperative borrower'," said David Hall, of insolvency experts, the Irish Mortgage Holders Organisation (IMHO).

If you're an uncooperative borrower, you'll typically lose your home within 10 months of first falling into arrears, according to Hall. If you co-operate, you could hold onto your home — or at the very least, buy extra time. A borrower in arrears who co-operates, but who still can't resolve their problem, can expect to lose their home within 16 months of falling into arrears, according to Hall.

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The definition of "uncooperative borrower" is set out in the Central Bank's code of conduct on mortgage arrears. This code sets out rules for lenders to follow when dealing with a borrower in arrears. If you're running into trouble, get a copy of this code so that you know what your rights are when dealing with your lender. If you're an uncooperative borrower however, you'll lose much of the protection offered under this code. You could also lose your right to strike a debt deal with your bank under the new personal insolvency legislation.

So what's an uncooperative borrower? If you run into mortgage arrears and ignore any letters or calls from your lender for three months, you'll become one.

Even if you engage with your lender, but in a way which prevents your lender from assessing your circumstances, you could also be deemed uncooperative.

Once you fall behind on repayments, you have three months to come to an alternative arrangement to repay your mortgage — unless you can clear your arrears and pay your monthly repayments in full before those three months are up. Otherwise, you'll meet the definition of uncooperative borrower. The same applies if you strike a new deal to repay your mortgage with your bank — but can't keep to that deal.

 

TALK TO YOUR BANK

To protect your home, it's best to engage with your bank — but do so in writing so you have a record of everything, advised Hall.

"You should also make monthly repayments off your mortgage — even if you are not able to make the full repayments," said Hall.

Get a copy of your lender's mortgage arrears resolution process (MARP) as it will tell you what alternative arrangements your bank may offer you, such as a split mortgage — where you park some of your loan with a view to repaying it at a later date.

"You're now seeing the advent of fixed-rate mortgages — where the interest rate on a mortgage is reduced to a sustainable level for a few years, and split mortgages," said Trevor Grant, chairman of the mortgage-broker group, the Association of Expert Mortgage Advisers (AEMA).

"With a fixed-rate mortgage, you could see your interest rate reduced to 0.5 per cent for five years — I've seen a number of cases where this has happened." Other products which the banks say they are offering to those in arrears include mortgage-to-rent and negative equity trade-down mortgages. With negative equity mortgages, you sell your home, trade down to another, and carry over whatever debt is left on a previous mortgage onto a new loan. The main disadvantages of negative equity mortgages is that you have to move house and you will have to carry over a huge debt built up on your old home.

Mortgage-to-rent is a government scheme set up to help low-income families in mortgage arrears to stay in their home. With mortgage-to-rent, you volunteer to surrender your home, and your bank then sells your home to a housing association — which then rents it back to you. The mortgage-to-rent scheme, however, is struggling to get off the ground.

Each lender has its own approach to dealing with arrears so your bank may not offer the same products as another lender.

When dealing with your bank to try to resolve your mortgage arrears problem, you must fill out a standard financial statement, where you tell your lender your monthly it's your money Louise McBride Join the debate at www.independent.ie salary, any other income you receive, household expenditure, transport costs and any other debts you have outstanding. It is important to be honest when filling out this statement — otherwise, your lender can say you are not cooperating and take moves to repossess your home.

It could be worth your while hiring an independent financial adviser or insolvency expert before discussing or agreeing to any alternative arrangement to repay your mortgage.

 

LAST RESORTS

If you can't agree on an alternative way to repay your mortgage, or your financial circumstances have changed so much since you first bought your home that you simply have no chance of ever repaying, the only way to avoid repossession could be to sell your home or to strike a debt deal with your bank.

If you are in negative equity, clearly a house sale won't clear your entire debt.

In such cases, you or your adviser will have to negotiate with your bank on how the shortfall will be repaid — and if any of the mortgage can be written off.

Remember, if your home is being sold at a loss, your bank will have to agree the sale.

"If someone has to lose their home, they should get assurances around the outstanding debt," said Hall.

"Sometimes a fiveyear monthly payment (off the debt) is agreed on full and final settlement." Your other option is to strike a debt deal with your bank under the State's new insolvency mechanism, the Insolvency Service of Ireland (ISI).

These deals are expected to include debt write-downs, particularly for homeowners in negative equity. The big disadvantage of the ISI service, however, is that your application for a deal — including its success or failure — will be recorded in a public register. For that reason, an informal insolvency arrangement could be the way forward, according to Grant. "With such an arrangement, you'd be applying the rules of insolvency, but not going the full route," said Grant. If you decide to try for an informal insolvency arrangement, hire a good insolvency practitioner to protect your interests.

 

THE COURTS

If these last resorts don't work, your lender will most likely move to repossess your home.

If your lender takes you to court, you and your lender may get another 60 days to explore whether or not a personal insolvency arrangement can be struck.

If you have already tried to strike a debt deal with your bank but failed, your chances of succeeding the second time around are probably slim. "Very little will have changed unless the judge can put some pressure on to secure a deal," said Hall.

If you still haven't reached a deal at the end of those 60 days, it's game over. You can expect to be kicked out of your home within between four and six months. On top of the stress of losing your home, you will have to find somewhere else to live. Unless you can rely on the support of friends or family, this means you will either have to rent a place (if you can afford it) or get your name onto the waiting list for social housing. "There are thousands of people on housing waiting lists and that's a major problem for people who've lost their homes because there's nowhere for them to go," said Hall.


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