With a falling market, there are always property owners that are in negative equity. In America, at the height of the Global Finance Crisis there were millions of people who owed more on their property than the property was worth.
For example, the mortgage on the property is $275,000 and the market value of the property is $250,000. This would result in the homeowner being $25,000 in negative equity.
Take the abovementioned example. Let’s say that homeowner wants to sell the property using the standard method which is: Approach the real estate agent, get a market appraisal, place the property on the market for sale etc…….. The best price they could obtain may be $250,000, leaving them short $25,000 still to pay the Bank, PLUS the costs of the Agent to sell (say $10,000 Agents Commission). THE OWNER WOULD NEED TO FIND ABOUT $35,000 to make settlement happen.
What will happen if the owner can’t raise $35,000? If the property owner cannot find the shortfall of $35,000, the Bank in most cases will then refuse to settle and will not provide the title deeds at settlement.
The Bank will usually insist that it will only settle if it is paid its full mortgage of $275,000. If the home owner cannot pay the full amount, there will then be a deadlock. It’s up to your Solicitor to negotiate suitable terms to get the homeowner out of the situation.
At Carver Lawyers, we have helped many clients who find themselves in a situation in which they are in negative equity, with no real solution in sight. Whilst a negative equity situation maybe stressful for the home owner or Landlord alike, there are solutions available. The key is to tackle the issue early and try not to let the negative equity position get worse.
A negative equity position is not a time to bury your head in the sand. The home owner should be mindful of the situation and look for strategies that will provide an “out” with the least pain and financial loss.
If you find yourself in negative equity, call the team at Carver Lawyers in Sydney to discuss your situation.
Dean Carver - Property Lawyer
Carver Lawyers Pty Ltd – Phone (02) 9773 4550
