Distressed property a reality in today's market

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“Many homeowners are currently battling with financial strain and are not sure whether they will continue to be able to afford the home that they live in. A large number of South African homeowners have high debt-to-income ratios and have been struggling to make ends meet. With the ongoing food price increases and tariff hikes, these homeowners are fighting to keep their heads above water,” says Goslett. “If financially distressed homeowners don’t relook at their situation and make the necessary adjustments as soon as they can, they will find themselves in a far more dire predicament.”

According to Goslett the worst thing that a financially distressed homeowner can do is nothing – it is imperative that action be taken without delay. “Unfortunately pride stops many homeowners from admitting that they need help with their current financial situation. Often they also don’t know where to turn and who to ask for help. Ignoring the situation or pretending everything is okay will only make the matter worse. Ideally it is best to act decisively and reach out for assistance as soon as there is a problem,” advises Goslett. He provides homeowners with some advice on how to handle this often complicated situation:

Assess your situation

The first step for homeowners who are struggling financially is to take stock of their current situation and determine whether they will be able to continue to bond their bond or not. “If the answer to this question is no, it is best to take action as soon possible. The homeowner should contact their bank and notify them of their current financial circumstances,” advises Goslett.

“Many homeowners avoid contacting their bank about their financial strain because they are worried about the house being repossessed, however this is ill advised. Not contacting the lender and defaulting on the bond repayment will not only result in the homeowner potentially losing their property, it will also lead to a blemished credit record and black listing.”

He adds that a negative credit record can make even renting a property difficult due to the fact that most landlords do credit checks on their potential tenants.

Communication is key

It is in both the banks and homeowner’s best interest for the owner of the property to continue living there and paying the bond. For this reason banks will often try and assist homeowners where possible by possibly rescheduling the debt or giving financial advice. According to Goslett, this can only happen if the bank is aware of the situation at an early enough stage and the homeowner has the means to continue to pay.

“Communication between the homeowner and the bank is crucial if the homeowner wants to resolve the situation. In certain instances banks are able to renegotiate the term of the loan from 20 years to 30 years in order to decrease the amount of the monthly bond instalment. Certain financial institutions could be willing to offer the homeowner a payment holiday of between three and six months - this might be all that is needed to provide the homeowner with enough breathing room to get back on their feet,” says Goslett.

Speak to the professionals

In the instance where the situation has moved beyond the homeowner’s own capabilities, it is advisable that they consult with a professional debt counsellor who can review the homeowner’s circumstances and provide a possible solution or guidance. Once the counsellor has assessed the homeowner’s finances they will be able to submit a repayment proposal to all the relevant creditors. An application will then be made in court to have the proposed repayment plan granted to ensure that legal action cannot be taken against the homeowner and the bank will not be able to repossess the property.

“An alternative option is for the homeowner to be placed under administration rather than debt review. In this case the property can be repossessed to mitigate loss,” Goslett explains.

Sell the distressed property

Goslett says that if the homeowner is not in a position to keep their home, it may be prudent to place the home on the market. In this case, it is advisable to contact a real estate agency that has experience in dealing with distressed property sales. The banks do work hand-in-hand with reputable estate agencies to sell distressed properties at market-related prices.

“If a homeowner is in financial distress sometimes selling the property through the distressed property channel is the most effective way to recover. In the case where the homeowner has managed to build up some equity, there might be enough money to cover their outstanding bond, as well as all or some of their other debt. This option could help the homeowner to start with a clean slate and re-establish themselves and their credit record,” says Goslett.

He concludes by saying that while financial distress is a stressful and complicated situation, homeowners who are in need can make use of certified real estate professionals who have the qualifications to successfully guide them through the sale of their property during these difficult circumstances.