Home repossession

sarah_id1

Hi Guys,


I am bit naive about property law and planning to buy one. Question going on in my mind was what happens if my lender repossess my home (in which I have 40% equity) and sells it at the original price I bough it for! Will it return my equity less any cost incurred to facilitate the sale!


Sarah

Cleaver

sarah_id1 wrote: »

Hi Guys,


I am bit naive about property law and planning to buy one. Question going on in my mind was what happens if my lender repossess my home (in which I have 40% equity) and sells it at the original price I bough it for! Will it return my equity less any cost incurred to facilitate the sale!


Sarah

My understanding is that homes that are repossessed are usually sold at auction. So it depends how much it goes for.

Say you bought your house for £200,000 with a 40% / £80,000 deposit. You get in to trouble, they repossess it at auction and sell it for £180,000. You still owe the bank £120,000 (presuming you'd paid no capital off), so they'd take this from the house sale and give you back the remaining £60,000. If it sells for the price you paid for it then you'd just get your deposit back, minus any fees and have a credit rating shot to hell.

So if you got in to difficulties you're better off selling the house yourself rather than the bank selling it at auction for whatever they can get.

I'm no expert in this though, so maybe someone else can confirm or correct my ramblings.

Radiantsoul

Yes. Any surplus after the banks interest and charges will be yours.

Davesnave

By no means all repos are sold through auctions. If you go on Rightmove, you'll find houses with the famous 'Do Not Use' tape on the bathroom fittings, gas fires, cookers etc. There are also many threads on the other channel from people buying repos conventionally, or hoping to.

There is an obligation on the BS in possession to attempt to secure the best possible price, bearing in mind what would be a reasonable time frame. Maybe for properties in areas where supply is particularly good, or for less desirable houses, this is judged to be the auction route. After all, the debt still racks up until the place is sold, regardless of when the morgagee received the keys.

HAMISH_MCTAVISH

Davesnave wrote: »

By no means all repos are sold through auctions. .

AFAIK only around 20% are sold that way, the majority are sold through normal channels at full market price.

We had a thread about it lately.

https://forums.moneysavingexpert.com/discussion/3078496

Loughton_Monkey

sarah_id1 wrote: »

Hi Guys,


I am bit naive about property law and planning to buy one. Question going on in my mind was what happens if my lender repossess my home (in which I have 40% equity) and sells it at the original price I bough it for! Will it return my equity less any cost incurred to facilitate the sale!


Sarah

Obviously they must return any net equity, but usually there is little left because (a) they will add 'penalty' interest to the account which can roll up to a very substantial sum over the year or so it takes to re-possess, (b) they will sell the house for a 'song' to get rid of it quickly, and (c) every other expense they can think of will be deducted from the money.

lisyloo

I believe there are now laws in place to stop houses being sold "for a song" but expenses are allowed.
For example if you had been evicted the they would be allowed to pay for the grass to be cut etc.
Whereas you'd normally do your normal cleaning, decoration, garden maintenance for free, this would now be done at commercial rates.
So there are costs involved which can legitimately mount up because everything being done has to be paid for whereas we normally maintain our houses with our own free labour.

sarah_id1

HAMISH_MCTAVISH wrote: »

AFAIK only around 20% are sold that way, the majority are sold through normal channels at full market price.

Thanks Hamish. I would expect that percentage to be high out of London and low in London as London has high demand. But I still see properties in London being repossessed by banks. What confuses me is that is the defaulter not bothered to recovered his deposit (could be as high as 40%) rather than let the bank have it all.

Another question
If a property is £200 and I put deposit £60
At the time of repossession I owe bank £140. I did some modernisation which increased the property value.
At the time of repossession Bank sold it for £220 (made a profit of £20K)
Will I expect my deposit(£60) returned and what about £20 profit!
Or I just forget all including my deposit.....

Consider amt in K's

Thanks again to all.

ruggedtoast

No idea what the actual rules are here, but the term 'repossess your house', would suggest it is no longer your house and what they sell it for they get to keep for their trouble after they have (hopefully) cleared your outstanding debt.

lemonjelly

ruggedtoast wrote: »

No idea what the actual rules are here, but the term 'repossess your house', would suggest it is no longer your house and what they sell it for they get to keep for their trouble after they have (hopefully) cleared your outstanding debt.

Not true rugged mate.

The house is repossessed in lieu of the debt on the mortgage. The value of the house is realised through sale. Creditor deducts what they are owed, plus costs incurred in recovering the debt from the proceeds. Whatever is left is returned to the mortgagee.

tyllwyd

sarah_id1 wrote: »

Thanks Hamish. I would expect that percentage to be high out of London and low in London as London has high demand. But I still see properties in London being repossessed by banks. What confuses me is that is the defaulter not bothered to recovered his deposit (could be as high as 40%) rather than let the bank have it all.

Another question
If a property is £200 and I put deposit £60
At the time of repossession I owe bank £140. I did some modernisation which increased the property value.
At the time of repossession Bank sold it for £220 (made a profit of £20K)
Will I expect my deposit(£60) returned and what about £20 profit!
Or I just forget all including my deposit.....

Consider amt in K's

Thanks again to all.

Houses being sold as repossessions means that circumstances must be pretty desperate - it is unlikely that if a owner had 40% equity in their house it would be repossessed. It would be more beneficial for the owner to cut the price drastically to get the house sold rather than be repossessed. So repossessions are more likely to be where the owner is in negative equity (ie they owe more on the mortgage than the house is worth), they are in substantial arrears with the monthly mortgage payments, and have no income or have other debts so they have no other options to avoid repossession.

You are getting too hung up on a mortgage being something special. It is basically just a secured loan against your house. If I want to buy a house for £100K, and I have £40K to put down as a deposit, I need to borrow £60K from the bank. If its on an interest only mortgage, when I sell, I have to repay the £60K - anything else, whether I've spent money on the house, or whether I sell it for more or less than the original purchase price, is my own problem. If it is repossessed, I still need to pay back the £60K, so if the bank sells it for £50K they will still chase me for the additional £10K and if they sell it for £70K they will give me the extra £10K (those figures obviously ignoring costs of sale etc for simplicity! and of course if you are on a repayment mortgage the outstanding amount will decrease gradually over time).