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Wednesday Mar 02, 2016

Financial distress - be upfront with the bank and get help quickly

Although the property market has picked up over the last few years, economic conditions are still tough for many and the predicted interest rate hikes are likely to place further strain on homeowners around the country.

"This year, those with high debt levels will be heavily affected as the interest rate increases and the cost of living continues along its upward trajectory. Some people may simply need to readjust certain behaviours to rectify their financial situation, but many others may find themselves in more dire circumstances," says Adrian Goslett of RE/MAX.

"Many people who are stressed and sometimes ashamed about their financial distress are less likely to talk about the topic and ask for help. However, it is vital that homeowners in financial trouble take immediate action and proceed with the necessary steps before the situation slips out of their control. It is a time to act decisively, take control of the situation and consult people who can help."

Goslett says homeowners in this situation should take the following steps:

Evaluate your situation. Be honest with yourself and look at your circumstance objectively when determining whether you can continue to pay your bond. If not, you need to notify your lender as soon as possible.

"Avoiding the situation and doing nothing is the worst decision you can make. It is best to be upfront with the bank and tell them the situation, rather than defaulting on a payment without notification. If the situation is left to run its course, it will result in you losing your property, and will lead to a tarnished credit record and black listing," says Goslett.

You might think the bank will repossess your property as soon as you mention your distress. However, this is not the case. Banks want their customers to keep their properties and will try to help where possible to ensure this happens. But they can only help if they are aware of the situation.

"The ways a bank can help you include rescheduling debt, offering advice on the right steps to take or renegotiating the term of the loan from 20 to 30 years," says Goslett.

Seek professional advice. If the situation has got to the point where you can no longer handle it by yourself, it is advisable to make use of a professional debt counsellor who can provide guidance.

A debt counsellor will be able to help you review your finances and submit a proposed repayment plan to the relevant creditors. An application will be made in court to have the proposal granted. Once the proposal has been granted creditors will not be able to proceed with legal action and the bank won't be able to repossess the property.

If it seems as though your circumstances are not likely to change in the near future, you can opt to be placed under administration rather than debt review - however in this case the property can be repossessed to mitigate the debt.

Goslett says that if you don't see any way out of your financial situation you can consult an estate agency that specialises in the sale of distressed properties.

"In an effort to help distressed homeowners, banks are working with reputable estate agencies to sell their properties at market-related prices. If you would like to keep your credit record intact, the most effective method of doing so is selling the property and recovering from the financial crisis.

"In certain cases where you have built up enough equity, you may be able to cover your remaining bond, and also some other debts as well.

"Essentially this option could provide you with an opportunity to start again with a clean slate," says Goslett.

He says that on average distressed properties spend around 45 days on the market and achieve around 92 percent of the asking price. In addition, the number of offers that have been accepted by the banks has increased considerably with more buyers showing an interest in the distressed property market.

"RE/MAX has a dedicated distressed property department and certified distressed property expert qualified agents that are trained to assist homeowners with these types of properties and situations.

"Although financial distress can be a complicated and stressful situation, there are options available, and professionals who can help you through these unfortunate circumstances," Goslett says.

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