How to Tackle the Prospect of Repossession

If your debts have reached the stage where you are worried about having your home repossessed, it is important to remember that in many cases repossession could be avoided. If, for example, you have very little equity in your home (‘equity’ means surplus value after the mortgage has been paid off), it would not be worth a creditor’s while to repossess it, and you may very well be allowed to keep it.

In order to judge how much equity you have in your home, you will need to find out how much your home is worth, then you can consider into applying for a home equity loan. Contact at least three estate agents and ask them to let you have a figure. They may need to see your home first. Alternatively, if they know the kind of properties in your road and your home is typical of all the others, they may let you have an approximate figure without having to visit you. Since these valuations are free, and estate agents normally give them because they think you might sell your home through them, letting them know that you probably won’t be selling your home at the moment and that you just want an idea of its value may trigger some unwillingness on their part so be prepared to shop around if necessary. You may well find that valuations vary between estate agents, so you should get several if you can, in order to find a realistic value. You should also be able to get an idea of your home’s worth by looking at how much similar properties in your area are on the market for – try checking the local newspaper or talking with neighbours.

You can also ask a surveyor to value your home, but you will be charged for this, so it is best avoided if possible.

Once you have a reasonable idea of how much your home is worth, work out how much you owe on it. Your mortgage lender should have sent you regular statements showing what you owe. If not, ask for a statement. When it arrives and you know the amount you owe, subtract the figure from how much your home is worth to see how much is left over. This figure represents the equity in your home.

As an example, suppose you have ascertained that your home is worth £85,000, and that the amount you owe on your mortgage is £80,000. The equity, or surplus, is only £5,000, and a creditor may well decide not to repossess your home for such a small amount. Indeed, after legal and administration costs, and other charges, the £5,000 will probably be swallowed up anyway.

Taking another example, let’s say you still owe £80,000 on your mortgage, but the value of your home has fallen to £75,000. In this case you have what is called ‘negative equity’. Since you are £5,000 out of pocket on your home, again a creditor would be very unlikely to seek a repossession order.

If, however, your home is worth £80,000, and you owe only a small sum on it – for example £30,000 – you have a substantial amount of equity and a creditor would be very likely to want to repossess your home in order to release that equity and use it to pay off the debt. Each case is different, however, and other factors may come into play to influence your creditor’s decision. When in doubt, always seek competent professional advice, especially if you feel there is a risk that your home might be repossessed.

You should also take into consideration whether your debt to your creditor is secured or unsecured. If you have taken out a secured loan, you will have signed a piece of paper agreeing to secure the loan against your home or other valuable asset. This means that, if you do not pay back what you owe, you have given the lender the right to repossess your home, or whatever valuable asset you offered up as security for that loan. A mortgage, for example, will undoubtedly have been secured against your home.

If you have taken out an unsecured loan, you will not have had to secure it against an asset. You should therefore check to see which of your debts are secured and which are not. Give this information to your adviser, who will be able to tell you how to proceed.

Filed Under: General How To's


About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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