Repossession processes and consequences

Banks employ various methods of liquidating the security on a home loan account and here are the most utilized :

1.   They employ specific estate agents and with the client's consent try and sell 

      the house supposedly faster than what they it can sell in the normal market.  

     To sell anything quicker than other agents this will imply   that they will pressure

      the client into accepting cheaper offers resulting in a bigger "shortfall"

2.   Clients can voluntary surrender the property and the bank  will then eventually 

      sell it on auction with a resultant "Shortfall" 

 3.  The bank can issue summons and eventually get a judgment where after the 

       bank will sell the property  with a resultant "shortfall"

Should a client be successful in applying for debt review none of these processes can start.  Banks are compelled by law to accept the payment as per the debt review - I will post the problems with debt review under a separate post.

The main consequence I want to discuss here is the "shortfall"

In the first two instances the banks will always insist on the client signing an acknowledgement of debt. As the client is in distress he will 99% of the time do this.  In a specific case where the bank was shown on the fact that their standard AOD is in breach of the NCA they came up with a thing called a 'Settlement agreement" with specific clauses stating that this is MERELY an agreement to settle outstanding debt with clauses confirming it to be outside of the NCA.  I am not going to go into the legalities of these documents now. Suffice it to say (in my opinion) both these documents would be totally illegal if the client's ability to pay has not been checked - That for a later post.

There will also be a clause stating that you consent to judgment should you default on this "new arrangement"

Insist on this to be removed should you decide to enter into an agreement like this.  It will require of the bank to go through normal collection processes should you not be able to comply with the arrangement

The problem with these systems are the following :  Once a property has been sold and the client signed some form of agreement the bank is in total control and the whole collection system starts from scratch with all the harassment and stress linked to that. 

What are a client's options ?

1. Debt review if the legal process has not started yet. -  Any client in gainful employ who realizes that he is financial distress should seek help fast and immediately by seeing a good debt counselor. 

2. Clients not in gainful employ and working for themselves does not have the luxury of the first option and should seriously consider insolvency.  You have and asset (the house) and in 99% of the cases sequestration might be a good idea. - |Discuss this avenue with a good lawyer specializing in this ( I can refer you to one)

3. Be very careful to sign sole mandates for agents referred to you by the bank or agents purporting to be working for the bank.  Read every document put before you carefully before signing it - again discuss this with a good lawyer specializing in litigation against banks. 

I am laying the table for my suggestions on a new way of handling these types of situations - watch this blog !

Socio economic effects of bank's collection systems

Debt has a two sided face. The one face is that of the Creditor and the other that of the Debtor.    The one is smiling and the other one is not. I will leave it to the imagination of the reader to decide which one is which. One thing is certain: they are never the same.


Banks and money lenders need customers to borrow money from them.  This is the basis of the money system.  You take money from depositors and pay them interest.  You lend it to borrowers who pay you interest. There is a difference in these rates and the difference pays the overheads of the Creditor and makes provision for Debtors that get distressed and cannot pay their loans. The difference that is left is the bank's profit  This is banking in its most basic form.

To make sure everything is in perspective I will be giving some definitions as I go along.  A Debtor(or sometimes referred to as the client or consumer is the one lending the money and owing it to the Creditor. (Bank - financier)

Banks have over the years perfected (In their opinion) the system of collecting the money owed to them and I will discuss in some detail one of those systems

Banks "finance" purchases of homes by registering a bond or lien over the property thus financed and this will be their "security" in case the clients default on their payments.  The banks have systems in place to "repossess' and sell properties of distressed clients.  There is practically always a shortfall once the property has been sold between the price obtained and the outstanding loan.  This is referred to as the shortfall.

Normally banks will persuade clients to sign a document called an Acknowledgement of debt to repay this.

The socio economic impact of the action is not discounted.  This is (in my opinion) a heartless system and has only one purpose:  to get the distressed client out of the way and get as much money back as possible in the most effective and cruelest way possible.

Of course it makes sense. But only to the banks.   "So why are you attacking us?" they will ask - this has been done for ages and there is no other way.

Of course there are other ways and I am going to discuss this at length in follow up posts - keep watching !