People in today's world have different ideas about debt and paying it back. Some people will always have a very "lax" attitude about debt and paying it back, but the vast majority will take the matter very seriously. For example, if they own a home, they will do whatever they can to make their mortgage payments on time. Even the most responsible borrower will always have to deal with things that are out of their control.
People fall behind on their mortgage payments for many different reasons, such as an accident or illness, being fired or laid off, the death of a spouse, bankruptcy, or a rise in mortgage interest rates. High consumer debt is the most common reason why people lose their homes these days. This kind of debt can be either secured or not. Whether this is because the borrower pays their unsecured debts before their mortgage or because they took out a mortgage loan that is more than their income can cover.
But how can a few missed mortgage payments lead to the house being taken away?
Very rarely will a property be taken away because of one or two missed payments. When people fall behind on their mortgage payments, they are told to get in touch with their lender as soon as possible. If the borrower acts quickly, they can often cut down on their possible arrears and get back on track. If you don't take action, your mortgage arrears will probably get worse, and you could lose your home.
When a borrower starts to fall behind on their mortgage, they have a few options. These things will be:
- Giving up an investment policy that is tied to the mortgage, such as an endowment or an ISA. When investors give up these policies, they usually lose a lot of money because they rarely get the full value of the policy back. Then, you have to think about how you'll pay off the mortgage at the end of the term if you don't have a way to do so.
- Making the mortgage last longer. This will cause the monthly payments to go down, which will make them easier to pay;
- Making a deal with the lender to make up for the late payments over a set amount of time. Most of the time, this is only a good idea if the borrower can afford to pay more each month;
- Making up the back payments;
- Moving to a smaller, cheaper home. This could let the borrower use the extra money to pay off the debt. This isn't always a good idea, though, since the seller has to find a buyer for the property and so on.
- Paying only the interest on the mortgage for a set amount of time. Of course, this is only a choice for people who pay their mortgage in instalments. This method is seen as a quick fix to relieve pressure in the short term, but the arrears will still need to be paid.
But what happens if you can't come to an agreement with a lender or find a way to pay off the debt?
Rarely is it a good idea to give the keys back to the lender. The borrower will still have to pay the mortgage until the property has been sold. This will cause more arrears and more fees for arrears. It's also important to know that the prices for repossessed properties are usually less than the market value, since the lenders' main goal is to get their money back as quickly as possible.
If an agreement isn't made and the arrears keep getting worse, it's very likely that the lender will go to the County Courts to get help. The borrower will first hear about this from the lender's lawyer, who will send them a letter.
Before a lender can take ownership of a property, they must first ask the County Court for a possession order. Most of the time, the borrower will get a court date for the hearing. Before the County Court will even think about giving a possession order, it has to be sure that the lender and borrower have tried everything. The County Court will think that taking someone's property should be the last option.
The County Court could do one of these three things:
- It can give an order to take full possession. This will let the lender take possession of the property, which usually happens within 28 days;
- The case can be put off until a later date.
- It can give a possession order with a hold on it. This will make the borrower responsible for making payments based on the court's decision. If the borrower doesn't keep up with the payments, the suspended possession order can be enforced.
Once a court has given a possession order, it will also decide when this order will be enforced. Then, the lender can take steps to get the property back.
Once the lender has full control of the property, they will change the locks, turn off the utilities, take the gas and electric metres, and let the local police know.
The borrower can still pay off the mortgage up until the point of sale, even after the property has been taken back. This can happen if the borrower was making plans for a remortgage at the same time.
If the lender loses money on the sale proceeds, it may take more steps if it thinks the borrower has the money to make up the difference.
