So you have defaulted on your mortgage despite everything I’ve told you. I’m sorry to hear that, but it happens.
Many people fall short of their obligations or simply fail. Look at Donald Trump. He had all those bankruptcies and is now a billionaire running for President of the United States.
This is what this post is about. The important thing is not that you messed up but how you handle messing up.
I know many of you look at your house and see the time and energy you put in. You can say why you picked that hideous colour for the feature wall and still laugh when you recall Junior’s mishap with the gardening tools on your parquet floors. It is an emotional investment. I get it.
However, you really should also remember that you entered into a business deal. Yes, every mortgagor is a businessperson. The mortgage really came about because you wanted to invest in property, whether for its own sake, or for your family, or for a space to live. Some even pay their spouse’s or friend’s gambling debts or go on a world cruise because their next door neighbours won’t shut up about theirs – called investing in experiences (YOLO!). The Bank wanted to invest in your loan in the hope of getting a substantial, reliable return. So you both are partners, the Bank bringing the seed money.
Now, in this mind-set look at your options. First, you need to reassure your partner you’re still good for the return before it demands all its money and gets out of the venture. As I’ve said previously you have a couple things in your favour: one, the Bank (Mortgagee) will do its best to keep its investment if there is any hope you can still pay, and two, the Bank can usually forgive defaults if you rectify it in a timely manner.
Therefore, the first thing you do is call your partner, the Bank, via your liaison officer, explain why you are in default and say when you can rectify it. I know you may think that she does not know, so why draw attention to yourself? This thinking is from 1827, as if your mortgage account involves a dusty ledger and an accountant with undiagnosed dementia who checks it once a year. No. This is the twenty-first century. It’s all automated now. The day after the system does not see your payment, or you didn’t submit that insurance certificate or you missed a loan payment on some other facility, a report is generated that shows up from her supervisor to as far as a certain northern parent company who is wondering if its investment in you is suspect and if it should cut its losses before the shareholders find out. If the Bank takes too long to issue a notice to you, the officer in the parent company may actually call or email that poor liaison officer and make sure she calls, writes or emails you. So not only will you be showing you are honest and trustworthy by calling her first, you will be making her life easier as well, which makes people more disposed to giving you a little ease. If you handle it right, most likely you and the Bank will stay partners well into the future.
If you’re saying you really can’t pay, that you’ve lost your job and cannot find another or have become disabled and you can no longer pay for the multi-million dollar condo at Rockley Resort you still owe a king’s ransom on, then that’s where it gets complicated.
Well, the prudent, obvious thing is to dissolve the business before you incur further losses. In this case you put the property up for sale and move in with your parents. Sorted.
Or, you could rent it out and then move in with your parents. That way you can still pay your mortgage and get some income as well. But get permission from the Bank first. You most likely agreed to do this in your contract.
I hear what you’re saying: your parents’ house is cramped, you’re comfortable, you love your house and besides, the Bank is rich and they can wait on the money. They are making loads of interest on you, after all, so why would they be stressed?
Don’t forget, this is a business transaction. The Bank was sitting there, minding its own business, when you walked in and pitched them on a wonderful opportunity and now it’s looking sour. Your partner is going to do what any prudent businessperson will do; try to get out before its losses are too great and the shareholders sue for incompetence.
Okay, now you are crying about leaving your travertine tiled floors that you installed yourself and feel the Bank should understand. Why? The Bank never agreed to be your friend. The longer you linger in the house the interest is increasing and eroding the worth of your house (the equity) and the Bank’s ability to recoup the sum you owe. It’s a serious matter, especially if you both stand to be saddled with a balance on a loan that the both of you will spend years into the future trying to pay or collect, annoying if you really can’t pay.
Still, you’re saying you’d rather die than give up your custom kitchen. They’ll have to drag you screaming from your double ovens. Sadly, this means your partner will have to enforce the mortgage contract.
The next thing that will happen is that your matter is assigned to a lawyer ($$$). The lawyer will send you what is called a “Statutory Notice” (Notice). Because of the Property Act CAP 236 of the Laws of Barbados, several provisions are implied into your mortgage unless you agreed in your mortgage contract to specifically discard them. One provision is that a formal notice must be sent to you, demanding that you pay all the money due to the Bank under the mortgage, or the Bank will sell your land/house/condo. The law says the Bank can only proceed one month after you receive the Notice, which you probably agreed can be deemed served by registered post to your last known address. So, no, you can’t just shut all the windows and hide.
If your land is without a house on it, the bank can conceivably hold an auction the day after the expiry of the wait time. They won’t do that, however, as under the same laws they have a duty to act in good faith and find the best market for your property at that time. To treat it as though it were selling its own house. So they have to drum up interest by advertising, seek professional valuations to make sure that they know the value of the land. However, once they’ve done their best they can sell it to whomever makes an offer they will take. They are not required to wait for a better market or offer.
However, if there is a house on the land, the above still applies, but the assumption is that persons are occupying the house. So an application required by law (Property Act) is made to the court to gain possession. This application came out of equity (principles of fairness the court adheres to that are not strictly law but are almost as good as) because you both have already agreed that the sale would happen if you can’t pay.
Basically, so that Mortgagors do not “lose” their homes willy-nilly, they are given an opportunity to make their case to the court if they believe that they can redeem the mortgage (pay back everything to the Bank, now including its legal expenses) or remedy some other default in a reasonable time rather than have to move out. What should happen is that the Court examines if this is just wishful thinking or not. If not, they are given a reasonable time under the circumstances to pay or deliver up possession, either by adjourning the matter to a later date or by a possession order which is suspended a few months to give you time to pay. If there is no reasonable prospect of redemption then the order for possession should be granted. The order now gives the Mortgagee access to the court’s organs for the enforcement of its order i.e. the Bank can now have the court’s marshals come and remove you, even screaming, and now you still have to go live with your parents. (Actually the marshals do work with you. They’ll explain they have to execute the Writ of Possession and say when they’ll be back to put you out, by which time you should be ready to just hand over the keys, or else…)
So, wouldn’t it be easier to avoid all that?
What you should do when you take out a mortgage is have a plan for when the business deal doesn’t pan out, like you would for a hurricane or a fire. There is no shame in it.
I guess, what I am really saying is, depending on how you handle the situation… you could be Donald Trump!