What do you do if you find that you may need to sell a property for less than the remaining amount on the mortgage?
Negative equity can be caused by a number of factors such as
falling property prices, initially paying too much for a property, property
damage and high loan to value ratios.
Negative equity can also make it difficult to refinance your
loan with a different lender and secure a better interest rate.
If you find that you have negative equity in your property
but that you have to sell it, you will need to contact your financial
institution to discuss an exit strategy.
The bank will most likely take you through the following
The bank will ask if you can provide any other
funds to cover the shortfall
The bank will ask you to provide a statement of
assets & liabilities
The bank may look at transaction statements and
ask you to explain any spending which may be deemed outside normal spending
The bank may obtain an independent valuation to
confirm that the property was sold for a reasonable market value
The bank will want to confirm that the sale was
conducted by a licenced real estate agent and not a "related party” sale.
The bank will submit an application summary to
its’ mortgage insurer
Once the mortgage insurer approves the sale,
settlement can proceed and the mortgage insurer will cover the shortfall
The mortgage insurer will then seek to enter
into an arrangement to recover the shortfall from you the borrower.
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Sunday, 1 September 2019