Negotiating with Your Lender
There are several stages to repossession - it will first be dealt with by the lender, then their solicitors, next it will go to court and ultimately, if the worst comes to the worst, it will be dealt with by a bailiff. Clearly it is best if the problem can be resolved at the earliest possible stage. If a borrower is in arrears and the lender hears nothing from them they are bound to pass it to their solicitors putting the whole chain of events into motion.
Costs and Fees Applied to Mortgages in ArrearsMany lenders will go to great lengths to contact a defaulting borrower - they may send letters, make telephone calls or even instruct a debt counsellor to visit the property. Borrowers should bear in mind that, under the terms of their mortgage, they will be charged for all of these. A lender is usually entitled to charge a borrower for any costs, fees or expenses they incur due to the borrower breaking the terms of the mortgage. These costs are usually added to the total mortgage debt but some lenders add them to the mortgage arrears meaning that these can grow at an alarming rate.
The terms and conditions should set out what a lender can charge a borrower who is in arrears. This may include a monthly fee just for being in arrears or a separate interest charge on the arrears. To minimise the costs incurred a borrower should be proactive - approach the lender before they approach you. If these fees are being added to the arrears it may be worth asking the lender not to apply them to the account as part of any negotiations.
What Can be Achieved by Talking to LendersBorrowers should always talk to their lender as soon as they know they are finding it difficult to maintain their payments. Some lenders will be sympathetic and may allow reduced payments or even a "payment holiday" if a borrower is facing a serious problem. If regular payments can be maintained for a set period some lenders will agree to add the arrears to the total mortgage debt - or capitalize the arrears - to give the borrower a chance to get back on track. If a borrower has decided that they have no alternative but to sell or re-mortgage their home they should ask their lender to wait before sending the account to their solicitors to give time for this to be achieved.
If an agreement is reached with the lender it is vital to try to stick to it. Promises which are broken may delay the account being sent to the lender's solicitors but will not prevent this from happening. Broken promises will only make the lender more sceptical about any proposals which are made in the future.
Talking to Different Types of LendersDifferent lenders have different approaches to borrowers in arrears. As a general rule of thumb the well-known "High Street" lenders may take a more sympathetic and patient approach. Whereas the "secondary" - or so-called "sub-prime" - lenders, who grant mortgages to higher risk borrowers, may pursue arrears more aggressively and at an earlier stage. However, what all lenders have in common is that they are businesses who want to keep up their profits. If a borrower can convince a lender that they will get their money back more quickly and efficiently by entering it an agreement than by taking the case to court they may be prepared to listen.
If an agreement is reached the borrower should put it in writing and send a copy to the lender, who should also confirm it in writing. Copies should be kept of all the correspondence. Of course there are no guarantees that the lender will agree to anything - but what is certain is that a borrower will not be able to reach an agreement with their lender if they do not talk to them.