Debt recovery: why you’re more powerful than the bank
Falling behind on your mortgage can shake your self-confidence and pride. But take heart. DG Institute Founder Dominique Grubisa explains why banks are actually willing to help your debt recovery process… more than you might realise.
So, you’ve missed a payment or two on your mortgage payment and, given the current state of your finances, it doesn’t look like you’ll be able to make the next one. What do you do now? Run away? Scramble? Ignore the situation?
Before you hit the panic button, roll over and let the bank repossess your home, it’s worthwhile remembering why the bank granted you a home loan in the first place. It wasn’t out of the kindness of their hearts – it was to make money. Keeping this key fact in mind can empower you to enter in negotiation with the bank and find a solution that suits everyone.
What do I mean? Read on.
Banks are in the business of lending money
Banks are not in the business of selling houses. Banks are in the business of lending money. The bank does not want your house, it wants you to keep paying interest. They don’t want to call up the loan and would prefer to avoid the hassle of kicking you out and selling up. This is a losing exercise for them in time, money and resources. Common-sense is strongly on your side here. But while banks do want to strike a deal with you, it’s essential you have a plan they can agree to.
So what kind of deal can be done to help you with debt recovery? Put simply, the deal needs to be a temporary, measurable solution allowing you to keep your home that satisfies your creditor but acknowledges your current inability to meet original repayments. Fundamental to such a deal is that it contains formal details of how you will make up missed payments and get back to agreed repayments – over an agreed period of time. That might, for example be six months, but the particulars will vary depending on the size of the loan and various aspects of the mortgage.
Imagine you had lent your neighbour money
Still can’t imagine how your debt recovery process might look? Here’s a super simple example. Say you loan your neighbours $100,000, intending to live off interest repayments of $2,000 per month. Your $100,000 is safe because you have their house as security and it’s earning better returns than a term deposit. One day your neighbours stop paying. You remind them several times and eventually they claim, “the cheque is in the mail”. It doesn’t come and your neighbour keeps ignoring you. What options do you have? You just wanted your $2,000 per month, but now you have to go to court and spend money on lawyers to get your neighbour out of the house. You need to send the sheriff to change the locks and find an agent to put the home up for auction. Then what if, after paying the agent, the water board, the council, the lawyers and back-interest repayments plus other charges a low resale value means you make a loss? It’s a huge hassle and risky too.
How a ‘win-win’ plan can help your debt recovery process
What if your neighbour came to you, before missing a payment and said, “I lost my job but I’m looking, I’ve moved in with my sister and am renting the place out. I can direct rent payments to you and when I get a job I’ll make up the difference. I’ve got interviews lined up and I’m confident I can fix up the arrears in six months time.” If the rent was $1,500 per month and he gave you an extra $200 per month from his part-time job, would you accept $1700 for six months then $2,300 per month for the next six months and then a return to normal payments? Of course you would! This is a win-win outcome.
So, don’t lose heart. Debt recovery is possible, especially with the right strategy and reliable advice from a team of debt specialists. When mortgage payments look unmanageable, you do not need to buckle. You need to negotiate instead. Have a detailed plan with measurable progress to get back on your feet and meet repayments.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practicing legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.