Repossession - a threat to overcome?

With repossession always a topic of some discussion within the industry, and the latest figures from charity Credit Action revealing that 99 properties were repossessed every day during Q2 2011, Debt Management Today decided to take a closer look at what can be done for clients faced with the threat of losing their home.

We spoke to a number of debt management companies to find out how often they are contacted by an intermediary or client threatened with repossession.

Vance Parsons, Director at EuroDebt, told us, “While levels of arrears and repossessions have been falling, helped by low interest rates, 2011 has been a very tough year for many households as the spending cuts impacted jobs and household income levels.

“As a consequence, a continuing rise in mortgage arrears and repossessions is to be expected.”

Bev Budsworth, Managing Director of The Debt Advisor, explained: “It is not a daily occurrence but we do see people with a combination of debt and mortgage arrears. There is a lot that can be done – there’s a lot of case law on repossession. For example, there is a past case where the Judge has permitted arrears to be spread over the life of the mortgage.”

Whilst figures suggest that repossessions have been falling slightly in the last two years, the number of repossessions in the first half of the year reached 18,100 according to the Council of Mortgage Lenders – up 9,000 from the first quarter of 2011 but down 7 per cent from 19,500 in the first half of 2010.

JP Benitez, Director of Operations at InDEBT Expert, said: “2009 saw a peak of properties being taken into possession by the lender and, surprisingly, the figure has been taking a steady drop coming into 2010/11.”

Barry Mitchell, who is the Proprietor and Senior Consultant at Recro Debt Management Services, told us that he believes lenders are more likely to repossess when the country begins to come out of recession. He said, “I think the deluge is still to come – this is because lenders take a long-term view.

“There is no point in them taking repossession of a property that may not be sold at a high enough price to clear their debts. Even worse, they could end up with an empty property which may be subject to vandalism. It is often better for the lender to allow the current owners to remain and the property to be lived in until the market improves and then repossess."

So, what are the recommended steps to be taken when faced with the possibility of repossession?

Vance Parsons explained: “Those facing financial difficulties should not delay seeking help to gain some control over their finances, particularly if they are already in arrears on their mortgage. This is where a debt solution from a reputable provider such as EuroDebt can really provide a lifeline for individuals unsure which way to turn.

“Mortgage payments and arrears repayments are treated as a priority in a DMP, along with council tax, utilities and critical insurances. And that means mortgage providers will get paid before other unsecured debts.

“Indeed, at EuroDebt, one of our priorities is to protect a client’s home and ensure that a realistic repayment arrangement is negotiated to clear mortgage arrears as part of a holistic debt solution.”

JP Benitez agreed. “My advice is to always prioritise debts, and, of course, your home is the most important, so you should always contact your lender in the very first instance and try and negotiate paying off your arrears. If you are unsuccessful in negotiating repayment of your arrears and your lender refuses the amount you offer, you should pay it anyway and ensure it is paid on a regular basis because it will improve your circumstances should it reach the court stages.

“It is quite surprising how many people manage to come to a successful negotiation with their lender and avoid repossession, as many people are under the impression it is next to impossible to avoid repossession.

“Some lenders have been known to offer anything from 12 to 24 months in paying off arrears – depending on your circumstances.”

Both Bev Budsworth and Barry Mitchell explained that the first thing their companies would do would be to look at a client’s income and expenditure. “The client then needs to present their position to the lender in a clear manner which includes a copy of their income and expenditure which clearly demonstrates that they can afford the extra payment to clear their arrears.

“I would also recommend that the first instalment towards the arrears accompanies their payment request,” Bev Budsworth said.

Barry Mitchell told us, “We always work out whether the mortgage is actually affordable or not. If it is unaffordable then we recommend to the client that, rather than repossession, they put their property on the market and sell it and clear the mortgage that way.

“If the property does end up getting repossessed, the individual will be placed on a register, perhaps making it more difficult in the future to obtain a mortgage. Of course, it would be even more difficult to obtain a future mortgage if they suffered a house repossession.”

JP Benitez explained what to expect from a lender. “Once you have missed your first payment, the lender will usually issue a letter within three to seven days of you doing so, as a reminder.

“If you choose to ignore this, phone calls will follow and the company may potentially send doorstep collectors. Many people avoid the issue because it can be quite daunting if you cannot pay your normal monthly payment – what chance do you have to pay a higher amount, right? (Again, it depends on your circumstances).

“You must, no matter the circumstances, always contact your lender. Should they not agree with any proposal you make they will inevitable involve their solicitors. A solicitor only has to give seven days’ notice to pay off any arrears before they are permitted to start legal proceedings.”

Is repossession ever the best option?

Bev Budsworth said, “We have dealt with a number of cases in which clients are seriously in negative equity with mortgage arrears and secured loans arrears. I helped a couple in this situation – they had around £50,000 - £60,000 of negative equity.

“In this scenario it was about making sure they, and their family, were not poverty-stricken. They clearly could not afford both the mortgage and the secured loan payments, never mind any contribution towards the arrears. They had already moved out of the property and found rented accommodation.

“They then returned the keys to the mortgage lender and I accompanied them to the bankruptcy court to file their petitions.

“In this situation, any shortfall would be covered by bankruptcy.”

She added: “If there is no way to cope and there is no equity in the property then working with the lender to allow them to sell the property as a mortgagee in possession can be a sensible way to extract yourself from a negative equity property that you simple cannot afford to maintain. This will almost certainly result in a shortfall which the lender will pursue – but which can be dealt with in an IVA or by way of bankruptcy.”

While it appears that there definitely are things debt solutions companies can do to help, repossession still remains a significant, and daunting, challenge within the industry. Vance Parsons concluded, “Losing your home is one of the most devastating things that can happen to an individual – and for many people, this will be through no fault of their own.

“In 2010, 15 per cent of our clients were already in mortgage arrears when they came to use for help and, with unemployment figures rising, it seems for many the worst is yet to come.”

By Miranda Atty