What is Property Repossession?
A property repossession order is the process through which a lender of a loan, secured against an asset (usually a mortgage secured against your property) undertakes proceedings to seize the asset. These proceedings are never a first resort and will typically proceed when other means of recovering the outstanding debt are exhausted.
Once the asset, for example a house or other property is seized and under the possession of the lender, they will usually seek to sell it off, sometimes referred to as a ‘disposal,’ in order to recover the money owed as soon as they can. Secured loans unlike unsecured loans, will lend much higher amounts and so a high value asset (such as vehicle, property or even artwork) is required as security, or ‘collateral’ to mitigate the risks of the borrower failing to repay.
There is a possibility that anyone who owns a property with a mortgage, second mortgage or other loan secured against it can have it repossessed if they fail to make their required repayments. Your lender, usually a mortgage lender, can apply to the courts to repossess your home if you miss the mortgage or other loan repayments. If you are struggling to make your repayments, you should try as hard as you can to get to the root of the problem to resolve it, as it may simply be a case of adjusting the type of interest arrangement or mortgage product with your lender to make things more manageable.
What is a Repossession Order?
Your mortgage lender will have the ultimate financial stake in your home as agreed in your mortgage agreement with them. Therefore, the lender is entitled to apply to court to take possession of your property if you have kept up with the required payments which you owe. In order to recover the money, the lender has the legal right to sell your home, with you not receiving any of the money, even if after the sale, a profit is made.
To give you peace of mind, repossession is always a last resort. You do not have to worry about your home being taken from you if you miss a one-off repayment. If it is going to happen, you will know about it well in advance, as soon as proceedings are initiated, as you will receive a number of warnings beforehand, which give you a chance to save your home. However, it is important to remember that any secured loan incuding first and second charge mortgages, home improvement loans in the UK and others can all be subject to repossession orders if the borrower does not make their payments and the case goes to court.
Are Tenants at Risk of Repossession?
Contrary to popular belief, you can be affected by repossession orders and their consequences if you rent your property from a landlord. It is hard to understand how this is possible if you do not own the property, but the simple explanation is that someone does own the property [your landlord] and if that person has an outstanding first or second mortgage secured against the property you are residing in and does not make their repayments, then the property itself may be repossessed.
In the majority of cases, this would force you to vacate the premises. In some cases, the mortgage lender will become your landlord instead; this will happen if your tenancy is a binding tenancy.
What Happens to Your Property After Repossession?
After your property has been repossessed, the lender will sell your home and keep some of the proceeds to pay off:
· The legal costs of repossession
· Your outstanding mortgage debt
· The cost of the sale
· Any other outstanding costs and debts they need to pay and recoup
Any other loans which are secured on the property are also paid off from the sale of it.
Repossessions and Second Charge Mortgages
Second charge mortgages in the UK, by their very nature run alongside a first charge mortgage, with the primary mortgage taking precedence. However, important to remember is that just because the first mortgage gets priority, it doesn’t mean that the second mortgage provider cannot undertake repossession proceedings if required.
Typically, in order to take out a second mortgage in an agreed portion of property equity, both the first and second charge lenders will need to agree. Part of the agreement between the lenders and the borrower is that the first charge mortgage provider takes priority should the property get repossessed. Anything left over from the sale of the property then goes to the second mortgage lender.
This increases the risk of the second charge provider, hence the increased scrutiny and ultimate costs. Should you fail to make the necessary repayments on your second charge mortgage though, the lender does not need express permission from the primary mortgage lender to repossess your home. The process would simply entail the second mortgage lender undertaking the repossession order and proceedings. Once the property is sold, as required, the first charge lender gets paid and then the second charge lender takes payment thereafter.
The Repossession Process
Your lender will have to follow certain rules before taking action and they must try and discuss your financial situation as well as give you a reasonable chance to pay anything off before they are forced to take action. Some lenders may even be willing to work with you on alternative repayment plans to get the debt paid off.
If your arrears build up too far and repayments are not or cannot be made, the lender will likely act on their warnings and start the repossession process through the courts. There will then be a possession hearing where a judge will decide if a possession order should be made.
You may be allowed to stay in your property if you are able to show that you can:
· Meet ongoing mortgage repayments
· Clear your arrears in instalments over a reasonable period of time
If court grants an outright repossession order or you fail to keep to the terms of a suspended order, your lender can ask the court for permission for bailiffs to get involved and evict you from your property.
Steps Mortgage Lenders Must Take
Both first and second charge mortgage lenders need to take a series of steps before initiating the repossession order process through the court system; it is not simply a matter of a missed payment leading to a repossession order. If you are in arrears for a mortgage of any kind, you are likely to be subject to the following:
- A statement from the lender(s) informing you at the earliest date that you are behind on payments and in arrears. This is known as a ‘Notice of Sums in Arrears’
- A Default Notice, containing the details of the late or missed payments and a date by which the arrears and debts must be cleared. This date must give the borrower at least 14 days to settle the arrears
- You should receive (from the lender) information on what will happen if you fail to make the required repayments
- Information on who you can contact for help, such as National Debtline and Citizen’s Advice Bureau
How You Can Avoid Repossession
Always be sure to keep on top of your finances in general, particularly repayments on mortgages and other debts. Also, be sure to open letters which appear to be from your mortgage lender, as avoiding your financial and repayment commitments always ends badly. Taking early action will give you more options and time to find a solution to your problems.
If you start struggling with repayments on a secured loan or mortgage. Be sure to get in contact with your lender, be it the first or second mortgage about any payment problems and arrears as soon as possible to avoid the possibility of repossession becoming a reality. It should be a priority to get debt and money advice at an early stage of problems arising.
You need to make sure that you are present for the possession hearing as missing it could finalise your fate. Attending the hearing will give you the opportunity to talk to your lender and explain your situation to a court and this can help influence the outcome for the best.
Finding a Home After Repossession
The process of repossession can take several months. Therefore, you will have time to plan and look for another home if you feel that repossession is unavoidable. This is likely the advice you will receive from legal advisers.