What is repossession of property?
Recent reports suggest that 1.4 million households in the UK are struggling to pay their mortgage. If you own property and are struggling with debt, you may be worried that your lenders can force you to sell your home to repay them, or even that they take your home from you.
Many debt collectors use ‘scare tactics’ to imply that this is an imminent possibility, but the reality is that is extremely unlikely to happen and lenders will only use this as a last resort.
What is repossession?
If you do not keep up with your mortgage repayments, the lender (or owner of the charge) can take steps to recover what you still owe by forcing the sale of the property. This is called repossession.
House repossession is a legal process of enforcing a debt which is often used as a last resort; it tends to be the last thing mortgage companies want to do. These companies specialise in lending money, not selling houses.
A property can only be at risk of repossession where the debt is secured against your home. This means that the lender in effect ‘owns’ a part of your property. Often, this is called having a ‘charge’ against your property. You will come across charges most commonly in relation to mortgages. In this example, the money that you owe on your mortgage is guaranteed by a charge over your property. When you sell your house, the remainder of what you owe on your mortgage will be paid to your lender before anyone takes the proceeds of the sale.
It is possible for other debt to become secured against your home. This will only happen in one of two ways:
You give a lender a voluntary charge –
This will often be at the lender’s request to stop them taking further action against you – this is often a bad idea. You must take legal advice if you are thinking about this, even if the lender tells you that this is only for their ‘peace of mind’ and that they will not take steps to repossess your property.
A court grants the lender a charge over your property –
This would only ever be after the lender has a court judgement against you, but you will have an opportunity to defend any application for a charge.
Although this is a very scary prospect, it is best not to panic about house repossession. Keep in mind that your lender will not start the repossession process without notice and giving you time to come to alternative arrangements. As long as you do not ignore any contact from the lender, you are at a relatively low risk. There are also ways in which you can defend yourself from repossession.
If you are worried about your home, you have time to seek advice and look for the best option for you and your situation.
What happens when a property is repossessed?
Repossession is a long and arduous process and does not happen overnight. If your lender goes through this process and is successful in being allowed to repossess your home, they will take steps to have you leave the property in order for them to sell it.
Once you have been evicted from the property, the lender will probably appoint a specialist company who will deal with the process of preparing the property for sale and finding a buyer. Empty properties are not attractive to buyers and are not likely to achieve a high sale price.
Empty properties are a security risk and will be regularly checked to ensure that they have not been vandalised or become a home to squatters. When your home has been repossessed, it is still your responsibility to make sure that there is adequate building insurance to protect the property. You will need to tell your insurer that the property is empty, which may increase the insurance cost.
Many repossessed houses are sold at auction. The company appointed to sell the house will instruct a formal valuation of the property which will include the expected sale price for a sale in 30, 60 and 90 days. The expected sale price will be lower if the vendor forces through a quick sale (sometimes called a ‘fire sale’). As long as you have held some equity in the house, you have a right to see this valuation.
The lender will have to get the best possible sale price for the property as it would be particularly risky to sell the property well below the valuation. This is because the lender now owes a duty of care to all other parties who hold an interest in the property sale, including the original borrowers as long as they had equity in the property, and any other charge holders. If they do not get a reasonable price for the property one of these parties may issue a claim for losses against them.
Once the house has sold, the lender who took possession of the house will first take the remainder of the funds owed to them from the proceeds. They will also deduct any costs which they have incurred in repossession and selling the property. Any remaining funds will be used to pay any other charge holders. Once all charges are satisfied, any left-over money will be returned to the owners of the property.
In practice, the fees involved in repossession are often so high that the borrower will still owe money to the lender even if the property is sold for its true value. It is very difficult to challenge and fees will be incurred.
(H3) When can bailiffs be asked to evict you?
If the court has made either of the below, your lender can ask the bailiffs to evict you:
● An outright order but the date of possession has passed
● A suspended order but you’ve broken the terms of the order
Nevertheless, they have to apply for an eviction warrant from the court, and they must send a notice to your home to say that they have done this. Unless you act to come to an alternative arrangement with your lender, you could be evicted 14 days after this notice has been served on you.
The date of service of any legal notice is not the date of the notice or the day you receive this, but two days after the notice has been sent to you. Notices must be sent by first class post on the same day as the day that they are dated, so the deemed date of service is likely to be two week days after the notice is dated.
If you are worried about becoming homeless, you should urgently contact a charity who will be able to help and advise you such as Citizen’s Advice of Centrepoint.
How to avoid house repossession
Mortgages are money makers for lenders, so they normally want to come to an agreement where you can resume payments instead of repossessing your home. They are also required to try and reach a suitable payment agreement with you before taking further action against you.
If you miss a mortgage payment, your lender will contact you. They will ask you how you plan to pay back any arrears. You can take steps to deal with mortgage arrears by:
● Looking at your income and outgoings
● Preparing a financial statement
● Prioritising your debts
You may be able to agree to an affordable repayment plan with your lender. Alternatively, you could ask the lender for time to sell your home, as you might decide your mortgage is unaffordable.
Other options to consider to prevent reaching the stage where a lender tries to repossess your home:
● Extending your mortgage term, which would reduce your monthly repayments to a manageable sum
● take out a new mortgage with lower monthly payments
● take a mortgage payment holiday allowing you to either stop or reduce monthly payments for a period
● consider changing lender to get better mortgage terms
● consolidate the arrears or pay something towards them. This will show that you are trying to improve your situation.
Where a debt does not start off as secured against your home (eg a credit card), the lender must take the following steps to get anywhere near repossession proceedings. First, you must miss payments and have the account terminated or defaulted. The lender must then issue proceedings and apply for judgements (you can challenge and defend this). If the lender is successful in court and you do not come to any arrangement to pay the judgement, they can issue a statutory demand for repayment. Only if you ignore this can they ask the court to grant a charge over your property (you can defend this). They must then begin the repossession process. Once again, you can defend this.
Repossession will always need to be approved by a court, and in general, a judge will never be in favour of making a family homeless. This means that you have a good prospect of stopping repossession, particularly with a little expert help. For example, a judge will not be in favour of possession where you have children under 18 living at home, poor health, or if there is little change of the property selling for enough money to pay the amount you owe in full.
If you are still worried, you should get expert advice on how to avoid repossession. A debt advisor can help you:
● Decide on the best option
● Find ways to improve your finances
● Make a financial statement
● Work out a repayment plan
You may also qualify for free mortgage rescue services which are well worth exploring.