Distress or Not to Stress- That is the Question Category Blog It seems that over the past few years owning a property for the average South African has become synonymous with unachievable mortgage payments, decreasing valuations and a lot of uncertainty. The ease of which finance was being made available in yesteryears and the general buoyancy in the past real estate market, has caught up with both speculators and first time buyers. The end result is an increased number of Distressed and Bank repossessed properties, all of which needing to be sold in a market that just isn’t cooperating. Let’s look at the case of your average distressed homeowner. With the pressure building, bond payments harder to make, and more questions being asked than answered, you may start to take notice of a few foreign words being thrown your way. Debt Counseling, Sequestration, Repossession, and Sheriff are just to name a few. Before your imagination runs away with you let’s look at what these words actually mean. Understanding your options and reacting accordingly is a sure way of limiting the damage and hopefully having a positive outcome. Debt Counseling: Debt Counseling as a broad definition is the process by which you are assisted by someone who is registered with the National Credit Regulator (NCR), to manage your existing debt, without the need to Sequestrate yourself. The idea is that you can manage your debts by acknowledging them and agreeing to pay smaller, more manageable amounts to your creditors. This is a good option when you are still in a fairly manageable situation, and often you can go directly to your creditors without a debt counselor to acknowledge and negotiate repayment terms. This can avoid costly legal action and ensures that you maintain realistic payment targets. Sequestration: Sequestration is a legal process by which you are declared insolvent by an Order in the High Court in terms whereof certain of your assets are handed over to a trustee, after which a trustee (appointed by the Master of the High court) must according to the rules of the Insolvency Act, sell your assets. The proceeds of the sale of your assets are divided amongst creditors in a manner which is prescribed in the Insolvency Act. You have to pay an attorney for this service which distressed property owners can’t afford, and not everyone qualifies. Repossession: A Bank Repossession occurs when a mortgage loan agreement is cancelled because you cannot maintain the monthly home loan installments and legal action has been instituted. The Bank will instruct its attorneys to take legal steps to foreclose and attach the property. The Sheriff then sells the property at a Sale in Execution. If the Bank is the highest bidder at the auction, the Bank then buys the property. A property bought by the Bank is then commonly known as a Property in Possession (PIP). If there are any shortfalls, you are still liable to pay the debt back. Sheriff: The Sheriff is an impartial and independent official of the Court appointed by the Minister for Justice and Constitutional Development. The Sheriff must serve or execute all documents issued by our courts. These include summonses, notices, warrants and court orders. Sheriff’s operate independently from each other - in fact, they are private business people. They are instructed by creditors and are responsible to sell properties on behalf of defaulting owners, but their commission is limited by law to no more than R8000. Their role has been highly scrutinized of late and allegations of collusion, bribery and coercion are common place at the Sheriff’s court. Most financial institutions are doing there best to avoid going this route and are encouraging their clients to do whatever necessary to avoid this process. So we’ve been through Distressed Properties 101 and you should have a better understanding of how it all works. What you may still not have clarity on is how to go about selling your property if you are not in a position to keep up with the installments. Usually you can approach your bank if they haven’t been in contact already, and request that you go on to their “Assisted Sales” programme. Most of the banks have something in place, so just find out what it is and how it works. The challenge is that throughout all this time, you have in all likelihood made use of the traditional Estate Agents channel and possibly listed your property on various web sites with varying degrees of success. This is where you need to look at alternative sales channels, and this is where Private Auctions are making the biggest impact. There is a big difference between selling your property with a Private Auctioneer and having it sold at the Sheriff’s court. Many people mistakenly opt to “take their chances with the Sheriff” without knowing the consequences. Here are some things you may not know. If your property is sold by this means, you will have a 30 year judgment against your name, making you unable to apply for any form of finance. The Sheriff is only required to advertise your property in the Government Gazette, at their premises, and in one local newspaper which means adequate marketing does not exist. There are alleged bidding syndicates that operate at most Sheriff Auctions making it nearly impossible to buy a property fairly and transparently. The Sheriff can only earn a maximum of R8000 commission on each sale which means they are not incentivised to get a higher price for your property. If there is a shortfall between what price is achieved and what the bank is owed, you are still required to pay this and will have little or no negotiation power. If the property is sold, the new purchaser is entitled to request you to vacate the premises within 24 hours. If it sounds a little nightmarish, that’s because it is. So what are the benefits of selling your property by way of a Private Auction if you are distressed? It Happens Quickly- By their nature, auctions happen a lot quicker and buyers are used to reacting faster. Estate Agents don’t seem to generate the same excitement and urgency that an auction does. Certainty- By setting a time and date for the auction, and by creating strict auction conditions such as deposits etc. you get a commitment to buy as soon as the gavel falls. You also know what marketing is taking place and what is happening to bring more buyers to the table. Price- The format lets bidders drive up prices. Competitive bidding at an on site residential auction for some types of properties can achieve close to open market or better prices. Whatever happens, a reputable Auctioneer will give you realistic valuations and manage your expectations. Most of the negative reports about Auctioneers achieving very low prices come from clients who have over borrowed or overvalued their homes, in a time where realistically, the buyer dictates the value. Transparency- You won’t be strung along by buyers or Estate Agents who say they will make an offer or bring a buyer respectively. The worst thing that can happen is for you to be wasting time with bogus buyers when you are heading towards the Sale in Execution. Piece of Mind- Generally, you tend to have more control over what happens at the auction, and are in a position to negotiate with the banks. They are usually very open to agreeing on big discounts on outstanding bonds or possible shortfalls. The most important thing is that this is a way to sell your property, minimize the long term effects and do so with as little stress as possible. There is a lot to take in and for many people, these decisions are a lot more difficult to make in reality. The most important thing is to understand your position and seek assistance from people who may know more than you. There are always options, but keep the communication channels open and you’ll make the right decisions.
Posted on: Sun, 30 Jun 2013 11:19:09 +0000
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