UK Repossession law

[gainvidya]

Had a very basic query about buying property in the UK.

If I buy a property worth £300K with 40% mortgage and keep up the regular payment to the bank its all fine. My question was what if I fail on my monthly payment which may be in arrear for few month

>how long does in reality banks repossess the property?
>If bank does end up repossessing my property and sell it for the original price (£300) will bank return my equity (i.e. 40%) minus any cost incurred in selling it?
>Any other suggestion in this kind of situation.

[John]

There is a contradiction in what you post. Firstly you say "with 40% mortgage" but then you say "will bank return my equity (i.e. 40%)", but of course if there is a 40% mortgage then the equity is 60%.

Irrespective of that, the factor you need to bear in mind is that the bank is under no obligation to achieve a good price when they sell the house. What you sometimes see, as a small ad in the newspaper, is a notice that an offer of £x has been received, and any better offer needs to be made within y days. There is no guarantee that £x will be anything like £300K. It could be say £160K, with no guarantee that someone else will offer more.

Possibly even worse, the bank might put the property up for auction, and specify a reserve of just enough for it to recover its money and costs on top. And what would it fetch at auction? Quite possibly a lot less than £300K.

But what effectively no longer happens in the UK is foreclosure, where the equity rights are extinguished, and the mortgage holder simply becomes the property owner.

Does that help?

[gainvidya]

Thanks John.

(This is for property in Greater London)

Sorry I worded incorrectly I mean 40% deposit. Now I will be highly surprised that bank sell off the property for 60% of market price. I did see some repossessed property in the market at market price. In fact I did offer 10% less to 1 of them and they didn't accepted my offer thats mean they are not selling it at heavily discounted price.

>The big question is will they be truthful to the defaulter and tell them we've sold it for market price and here is your deposit money back or will gulp the whole sale amount? This doesn't sound legal to me.

>I imagine almost every one in that situation who foresee that they wont be able to keep up the payment would sell it by themselves. Nobody would like to lose 40% deposit (or £100K+) thats a huge sum. So what confusing is why do I see so many repossessed property. Are the defaulter not bothered to recover their deposit they've locked in?

[John]

Now I will be highly surprised that bank sell off the property for 60% of market price.

Well I would not, and especially at auction we are looking at the forced sale price, undoubtedly less than the market price .... if someone is prepared to wait.

The point I need to make is that the bank is under no legal obligation to wait and get the best price for you. You would have no recourse against them if they fail to get what you consider a good price.

Of course prior to being able to sell the house the bank will have got a repossession order from a Court. You will have an opportunity to contest the application for the repossession order.

[gainvidya]

Now I will be highly surprised that bank sell off the property for 60% of market price.

Well I would not, and especially at auction we are looking at the forced sale price, undoubtedly less than the market price .... if someone is prepared to wait.

The point I need to make is that the bank is under no legal obligation to wait and get the best price for you. You would have no recourse against them if they fail to get what you consider a good price.

Of course prior to being able to sell the house the bank will have got a repossession order from a Court. You will have an opportunity to contest the application for the repossession order.

Thanks Again.

In short 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

[John]

Your equity is whatever is not charged on the house.

So if the house is sold for £220000, and the mortgage is £140000, you would get £80000, subject of course to expenses.

But the point I am trying to make is that if the house is repossessed the bank is under no obligation to seek out or wait for a good offer. So you think the house is worth £220000 after improvement, but if it sells for say £148000 at auction, well you are clearly not going to receive a lot, are you.

If you don't believe me about this, search out an auction site selling property, and after investigation you will see how cheaply a property sold on a forced sale basis can be.

The main point here is .... keep up with the mortgage payments ... and the mortgage lender will not have any ability to repossess the property.

[giuseppenero]

If the bank recoups more than their investment, (what is owed on the mortgage) please explain why the bank would give Gainvydia anything
back? Since they would have REPOSSESSED the house, they are the sole owners and the defaulter would have no more legal title to anything.
Unless their is a defaulter protection law that I am not aware of.

[John]

giuseppenero, no, what you are describing is called foreclosure, and in the UK, these days, the Courts are loathe to order that.

Courts these days tend to order repossession, and that gives the mortgage lender the right to take possession and to sell the property, that is, to give good title to the purchaser. Repossession does not extinguish the rights of the equity holder, who still get what is left after the mortgage lender has been repaid.

[giuseppenero]

Glad to hear it