Behind on Repayments? Facing Foreclosure?

If you are behind on your mortgage repayments and your bank or lender are instigating foreclosure proceedings, we hope that you will find some helpful information here so you may know what you can do. Doing something is always better than doing nothing. It is never too late, but the later you leave taking action the more stressful taking action will be due to timing issues. We have seen many families save their homes because they took action after contacting us, even at the last moment when the sheriff was due.

We have a story in the testimonial section of this website of a family who contacted us after they had been served with a writ of possession. Their bank had turned a deaf ear to their situation which they had an answer for and continued bulldozing down the path of repossession. After this family contacted us, we put them in touch with Channel Nine's A Current Affair, who instantly ran a story on their situation. Because of the public pressure this family's bank came under, their bank suddenly stopped the repossession action once the story was aired! Banks and lenders, even though they are faceless institutions, do not like bad press, especially in the media! This lovely family still live in their home today, but ONLY because they did not give up and continued to take action.

It is a very unfortunate fact that when a bank or lender decide that they will begin to foreclose on a home borrower, many of these institutions do not come forward and offer their clients the options that are available to them under the hardship variations of the loan contract. This lack of duty of care really shows the heart behind many banks and lenders. They really do not care! Many banks and lenders will bull doze ahead to foreclose - if the home borrower does not know what is available to them or what to do in this situation they stand no chance. 

Getting behind on your mortgage repayments and your bank or lender beginning to foreclose is an embarrassing situation for most people. Many people in this situation suffer in silence and do not seek help. Maybe the home borrower cannot afford the services of a solicitor. Maybe the home borrower just feels that it is all too hopeless and does not know what to do. 

If you are behind in your mortgage repayments to your bank or lender here are a few options that may be available to you:

1. Applying to APRA for an early release of your superannuation to catch you up on your arrears and also to put you 3 months ahead. The property must be your family home and principle place of residence to do this. You should only apply for this if you will be able to continue to cover your mortgage repayments once you are back in front, or if you are in the process of selling (this will get your bank or lender off your back while you sell, relieving much pressure). If you know that you will not be able to continue to afford the mortgage repayments you should not go down this path, (unless you are able to sell during this time), as you will waste your superannuation money.

2. Apply for the hardship variation to receive 3 months relief from mortgage repayments. This can be applied for if you have hit a hiccup in your personal/financial circumstance that is only temporary but has set you behind in your repayments. Your bank or lender will require you to document your situation in writing, along with supporting evidence to back up your situation, such as doctors certificates, loss of job, death in family, etc. Your bank or lender will also require supporting evidence to show them that you are getting your personal/financial world back on track so you will once again be able to continue on with the repayments at the end of the 3 months. The 3 months of repayment relief will be tacked onto the end of your mortgage (eg, so a mortgage that was 25 years, would increase to 25 years and 3 months.)

3. If you are have no success with the above, and your bank or lender are aggressively going ahead with their foreclosure procedures, there is something more that you can do. If you are able to refinance, you can put in a written offer to your bank or lender for 10% less than the debt owed on the property. If your bank or lender refuses your offer and proceed to sell your home for less than the offer that you gave them in writing, you then have grounds to take your lender to court and sue them for their lack of duty of care and financial hardship that they purposefully enforced onto you and your family.

If your offer is accepted, you can simply refinance with another lender and get a new mortgage for 10% less than what you had before! (We've seen this done before - it does work!)

4. If your property has more debt on it than the price that you are able to sell it for (little or no equity), you can apply to your lender for mortgage shortfall funding, if you need to sell due to being unable to afford the mortgage repayments anymore. To do this, you need to communicate with your lender to inform them that you need to sell but you think that there is going to be a shortfall. Depending on the shortfall amount, your bank or lender can approach the mortgage insurer to cover the shortfall amount. You would then enter into an arrangement where you would pay the mortgage insurer back as an interest free loan. This is a far better scenario than if your bank or lender was to repossess your property and force a sale. You can be guaranteed that if this were to happen you would be owing the mortgage insurer thousands, if not hundreds of thousands more than selling the property yourself with a shortfall.

5. If unsecured debt has overcome you (such as credit cards, store cards, etc) and keeping on top of this is affecting your ability to stay on top of your mortgage repayments, you can look into a Part 9 debt agreement. This is part of the bankruptcy act and your credit rating would be marked for 7 years if you entered into this.

In a Part 9 Debt Agreement, the interest on all your unsecured debt is frozen immediately. You make one monthly repayment to the Part 9 Debt administrator, for the specified period of time. If you are able to afford your mortgage repayments plus this Part 9 repayment, this may save you from losing your home. Being able to keep your home and profit from the capital growth while completing your Part 9 agreement is far better than going bankrupt and losing your home.

Mortgage Insurance

Almost every loan in Australia is mortgage insured. Whether you paid the mortgage insurance premium or your lender did depends on how much deposit you brought to the table when purchasing and how much you borrowed. Mortgage insurance does not insure the home borrower if he/she defaults. Mortgage insurance protects the bank/lender if a home borrower defaults. Basically, the mortgage insurance covers the bank/lender 100% full recovery of all monies lent and spent on the secured property. This is often the reason why mortgagee sales are sold way under market value - the bank or lender do not care what price is achieved as they know that they will recover all losses from the mortgage insurer.

The mortgage insurer works side by side with your bank/lender in a mortgagee sale. The bank cannot sell the property that has been repossessed without the mortgage insurer's permission. The mortgage insurer also agrees to the reserve price that the repossessed property can be sold for.

Unfortunately for the home borrower in the position of having their bank/lender force a sale on their home, there is really no protection. You lose all control but are charged with every expense accumulated with selling the property (as well as all mortgage repayments from the time you were evicted to the time the house is sold and settled). For a home borrower to be in this position is definitely the worst case scenario.

Once a property is fire saled by the bank/lender, they will quickly make a claim with the mortgage insurer. Once the mortgage insurer has paid out the bank/lender whatever the shortfall was, they will then come after the old home borrower to make arrangements to be paid back this amount. 

Our DIY Rent to Buy manual covers these points for distressed home owners, plus selling your home yourself using a flexible term sale (Rent to Buy systems).