Property Repossession - Common Myths Explained

While meeting people at various events, eventually talk turns towards the increasing number of repossessions, which have been increasing as interest rates started to rise at the beginning of 2006. This is bad news as it is for people going through the repossession hell, some people seem to believe that the enormity of this problem can be avoided by doing things that simply can not be done - at least not in UK.

Some one recently mentioned, “the best way to avoid trouble is”, he said, “just hand over the keys to the bank manager - that way they get to keep the house, I save my credit history.”

Nice idea Jack, just that it does not work like this… not in UK any way!

Some one else recently wanted to help those going through repossession buying the property fast by finding ‘foreclosures’. So he was trying to figure out how ‘find’ people who are in trouble. Further proving showed that he had been reading far too many property books meant purely for American audience. Foreclosure is a term used in the US. Law works differently in UK, and it refers to repossessions.

Same thing? Hardly!

Lets us talk about foreclosures versus repossessions first, and then some other common myths.

Myth 1: Just hand the keys over to the bank

Many people believe that if they are struggling to keep up with paying the mortgage then handing over the keys to their bank manager will clear them of any further obligations of making payments - because they do not own the house, right?

Sadly this is far from the truth.

Mortgage company lends you the money (cash) and requires you to pay back the whole amount and interest in cash. If the company has to sell the house on your behalf then you are still liable for any interests incurred till all the dues are cleared.

Myth 2: Property repossession allows you to make a fresh start.

Only as long as all debts are cleared from the proceeds of your property!

If the proceeds from your property only pay back a part of the loan to your mortgage company then you are still liable to pay back the outstanding amount. These situations can happen if the property prices have crashed below the borrowing levels.

Myth 3: UK Repossessions are not the same as USA Foreclosures 

In UK, companies are not allowed to seize the house as is the case in US. Courts allow them only to repossess the house to be sold at the fair market value, pay the owed amount (and expenses) from the proceeds and send the balance to the borrower.

The Building Societies Act 1997 directs companies to “take reasonable precautions to obtain the true market value of the mortgaged property.”

The true value of any property is often subjective - and depends on the opinion of a purchaser. So how can a mortgage company determine its true market value?

Auction is a route that many companies take.

However the mortgage company does not has to sell the property via auction to obtain the true market value. Courts generally accept this method as a determinant of fair value, but as long as a company can demonstrate, if questioned, that other methods were used, it is allowed.

Some companies sell the property via local estate agents without disclosing that he property is repossessed. By the way of like for like comparison, they can demonstrate that fair value was achieved.

However US housing lenders are allowed to apply to the court (and granted permission) to seize the house back, sell it and keep the whole proceeds. Normally court allows repossession but increasingly they are allowing foreclosures. This means that investors can buy the house from the company cheap and make a profit on by reselling it at full market price.

So, if you are facing repossession threat then it is best to speak to some one competent about your situation. One advice is: do not ignore correspondence from your mortgage company. Second, get neutral advice as soon as you can. You do not always have to pay for the advice. Many free advice resources are listed on this link.

Remember,if property is sold via your lender (after repossession) then you not only become liable for further charges (e.g. bailiff etc), this also gets recorded against your credit score for future reference.

Many people prefer to sell the property to an investor who can buy the property fast. These investors can be located via doing a search on Internet, searching your local papers or speaking to those in the know.

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