8 Mortgage Tips To Get Control Back The Banks Won’t Tell You

20/09/2011 1:27 pm

September has been declared to be mortgager health month by the Australian Securities and Investments Commission (ASIC), who are urging people to undertake a mortgage health check this month.  Mortgage stress has grown this year due to the increase in interest rates over the last year, the natural disasters at the beginning of this year and the ever rising cost of living.

A number of issues can arise for real estate investors and property developers that can lead them into trouble with their lender, including loss of tenants, delays in planning approval, construction overruns, problems with refinancing and slow sales.

When investors and developers fall behind in mortgage payments, lenders have great powers to recoup their loans. If a mortgagor fails to abide by the term of the mortgage, including making the repayments, the lending institution may send a default notice or commence legal proceedings to take possession of the property. If you receive a default notice from the bank there are various options to consider depending on your individual circumstances, in order to take some control back.

1. Seek Independent Legal Advice

If the Bank has sent you a default notice and/or commenced legal proceedings against you, then you may consider seeking independent legal advice to help guide you with your legal issue.

The number to Law Access in NSW is 1 300 888 529.

You may want to request a copy your loan and mortgage documents from the lender in order to know your rights and obligations under your agreement with the lender. This information may be vital to a solicitor being able to give you good legal advice. The bank may have certain legal obligations under statute, such as the National Credit Code, depending on the type of the mortgage and loan agreement you have with the bank.

The legal advice from Law Access is free. You may end up losing your property, so why not take advantage of free independent legal advice!

2. You May Lodge a Dispute with the Financial Ombudsman Service

The Financial Ombudsman Service is free to consumers and is an alternative to going to court. This is a service which independently resolves disputes between consumers and financial service providers.

The Financial Ombudsman Service can be contacted on 1300 78 08 08

Once an application to the Financial Ombudsman Service is made, the legal proceedings initiated by the lender are put on hold until the dispute is resolved.

3. You May be Eligible to Apply for Financial Hardship Under the National Consumer Credit Protection Act 2009 (the Credit Act)

You may be eligible to apply for financial hardship under the Credit Act if you are having trouble making your loan repayments because of "illness, unemployment or other reasonable cause".

If your application for financial hardship is successful your contract with the lender may be varied by:

  • Extending the term of the loan and reducing each payment amount.
  • Postponing a repayment until a future date.
  • Extending the term of the loan and postponing certain repayments.

Please see the fact sheet on financial hardship provided by the NSW Consumer Credit Legal Centre for the requirements to apply for financial hardship.

4. You May Consider Offering a Payment Plan

You may consider offering a payment plan to the lender that you can afford in order to pay the outstanding amount owing to the lender.

The lender may be willing to defer legal proceedings and accept a payment arrangement with you.

It is important to enter into an arrangement that you are able to afford and can comply with.  If you do not comply with the arrangement with the bank within the prescribed time limit, the lender may continue legal proceedings against you.

5. Apply to APRA for Release of Your Superfunds

Superannuation generally cannot be accessed before you are at least 55 years old. However, under some very specific circumstances, the law allows you to access your superannuation earlier. One of these circumstances includes  when a lender is about to sell your property or foreclose a mortgage over your property.

Among several requirements you may need a letter from the bank providing that they will stop action against you if a specified sum is paid to the bank (See the guidance doc).

6. Apply to Refinance the Loan

If you haven't already, apply to refinance the loan.

7. You May Need to Consider Selling

You may need to consider selling the property if you will not be able to afford to pay the mortgage now and in the future.

While this may not be the most desired outcome for you, you may save money in the long run by being realistic about your current situation.  If the bank commences legal proceedings against you to take possession of your property and recover the debt owed, you may be liable for the legal fees incurred by the bank.  Therefore if you cannot and will not be able to pay the money you owe to the bank under your secured loan, you may need to consider selling the property to pay the remaining amount owed to the bank under the loan.

Law Access provides a (fact sheet) for your information to decide whether you may need to sell your property. Please note you should obtain legal advice in respect to your specific situation.

8. Hand the Property Over

While there are advantages to selling the property yourself, if there will be a shortfall you may consider handing the property over to the bank for the bank to sell themselves.

It there is a shortfall after the sale of the property, you may still be required to pay the remaining amount owed under the loan to the bank.

Knowing your rights, responsibilities and options is the best way of maintaining some control in what can often seem like a powerless situation.

UPDATE

Please note that this information is general in nature and it's relevance may vary depending on your circumstances. Please seek legal advice in respect of your indvidual situation. The information provided is specific to NSW.