Low Auction Prices Leave Consumers With Massive Debts
It can be hard to keep up with debt repayments on bonds and cars when times are tough. 2020 left millions of South Africans deeper in debt than ever before and more and more people are finding it hard to keep up with demands from their banks.
This is leading to a steady increase in sales on auction of homes and vehicles.
How much will your home be sold for and what happens if that amount is not enough to settle your outstanding debt?
When You Just Can’t Pay
If you have a bond of vehicle and just cannot keep up with payments then always try to pay at least what you can afford towards your bond. This will not only show “good faith” on your part but help keep the interest portion of your debt from growing. This is something credit providers never want to see.
Debt Review Can Help
If you are earning some money each month and are not able to cover all your debts and have begun to skip payments then a possible solution may be to enter debt review to restructure all your different debts to make sure the bond and vehicle get a decent payment each month and that you retain the asset.
‘a possible solution may be to enter debt review to restructure all your different debts’
Speaking to a Debt Counsellor and discussing the situation will quickly enable you to see if this is something that might work for you.
Tough Choices When Times Are Tough
If however your situation is so sever that you cannot keep up payments at all then you should look at some tough options like (1) putting the house on the market for an absolute rock bottom price to move the sale through asap (with the goal of settling your debt) or (2) working with the bank on a sale of the property. Many banks have programs like this in place. Here they will look to help you market and will even cover legal fees for transfers and write off a portion of the debt (not all mind you but often a decent chunk).
‘If you miss a few payments then the bank will be within their rights… to take the matter to court’
If you miss a few payments then the bank will be within their rights (according to that contract you signed) to take the matter to court. They will organise for you to get a letter warning you (and suggesting debt review) and then they will organise a summons and then it is off to court to get a judgement and warrant to sell the property to recover their money.
If you decide to try avoid this by putting the house up for sale is to avoid all that. However, time is not normally on your side as the bank will quickly start legal action if you have been missing payments and have no way to pay them what they are asking. It is vital then that to sell the property quickly you offer a really sweet deal to prospective buyers. The reason you drop the price is because you would want to avoid having your home sold on auction by the bank. The challenge is, you have to pay the bank off what is owed. With newer homes (less than 10 years) you are still busy chipping away at the interest mostly so the debt may be big. You may not actually be able to sell the home for what is owed.
This may then be a motivating factor for working with the bank on a distressed sale, where they help you and are prepared to take less than what is owed on the bond and write off some of the debt or fees. This can be preferable to them selling the home on auction where you get much less than what is owed.
Sale Of Homes On Auction
A recent report on the sale of homes on auction indicated that homes on auction (with a reserve price) are selling for around 60% of the market value of the property.
‘homes on auction … are selling for around 60% of the market value of the property’
So, if you sold the home for 70% of the value yourself yo would still make more than via a bank auction once they have taken it away from you.
Some homes have been sold for very, very little and in other cases, the bank itself ends up buying the property (basically from itself).
Things are better now than in the past where homes used to get sold for as little as R10 but you should not expect an auction to cover all your debt (even with reserve prices these days).
What Happens To The Rest of The Debt?
If your home is sold for 50% of what you owe the bank then you will still have to pay the other 50% of the debt over time. This is true even though you no longer can use the house and it has been sold to someone else. You signed a contract for the value of the loan and not a house.
If you owed R300 000 for a car that was put on auction and it was sold for only R100 000 on auction then you will still have to pay the remaining R200 000, even though you do not have the car anymore.
A Judgment Lasts 30 Years
Often this will mean you will have to pay a portion of money every month for up to 30 years towards a debt. This may be a smaller amount if you have very little but the bank will want its money. Do not expect to get out of paying them. You could end up paying hundreds or even thousands of rand every month for a long time.
It will also mean getting more credit later from other banks will be very, very hard.
Get Help Before It Goes That Far
There are few debts harder to pay off than a debt for something that has already been sold on auction years before. It just feels so unfair even though you did sign those contracts and agree to the process.
If you are facing tough times and are scared that soon you will not be able to pay the bank what they are demanding then speak to your local or online Debt Counsellor for advice and information about what options you have. Each person’s situation is unique and they will have tailor-made counsel for you.