What are the consequences of not repaying a mortgage?

One often hears about the risks of taking out a mortgage. The bleakest scenarios warn of immediate seizure of the property and the loss of all one's assets. This possibility keeps many borrowers awake at night. What is the reality? What are the consequences of not repaying a mortgage? We have looked into it and gathered all the key information for you in one place!

• We cannot afford the instalment… what next?
• What do we gain by being able to sell the property ourselves?
• What if the borrower does not respond to the demand for payment?
• It pays to know more

We cannot afford the instalment… what next?

Contrary to appearances, failing to pay a single loan instalment will not bring a whole army of bailiffs down on our heads. It will begin with reminders sent to us by the bank by post or by phone. The attitude we adopt at this point is extremely important. Avoiding contact, refusing to collect letters from the bank and similar actions work against us. Instead, it is a good idea to… go to the lender's nearest branch. Although this may seem like a way of speeding up enforcement, that is not necessarily the case. Getting in touch with the bank quickly will let us start negotiations and give us a better chance of an outcome that satisfies us.

What are the most common solutions that the bank may offer us?

• A permanent reduction of the loan instalment in exchange for extending the loan term
• A grace period on repaying the principal in exchange for smaller instalments (the length of the grace period is set individually)
• Deferral of part of the repayment – to obtain this kind of help, however, you have to try hard, as this solution is treated as an exception to the rule, not normal practice.
• The option of selling the property yourself to cover the costs of the loan – we will discuss this last option in more detail

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What do we gain by being able to sell the property ourselves?

We find out what the consequences of not repaying a mortgage are when we sign the agreement. In short: the bank may take over the property in accordance with the terms of the loan agreement and dispose of it as it sees fit. It may also enforce the debt in other ways, though these are not pleasant experiences. That is why the option of selling the property yourself is a big plus for borrowers. It means that within a set time they will have to "get rid of" the flat or house and repay the bank from the proceeds of the sale. In such an arrangement the debtor will not be charged the costs of bailiff proceedings. This is therefore a considerable saving.

What if the borrower does not respond to the demand for payment?

By doing so, they will go a long way towards bringing about the worst possible scenario. The bank may terminate the loan agreement, which means the debt must be repaid immediately and in full. Plus interest.

At this point, the bank enforcement title (bankowy tytuł egzekucyjny, BTE) comes into play; it is issued by the lender on the basis of the loan agreement alone. It therefore does not require any court battles, because all a BTE needs is an enforceability clause granted by the court. And that takes a mere… three days. In other words – not repaying a mortgage simply does not pay off.

Once the BTE has been issued, it will not be long before the case (and, as a consequence, the property too) is taken over by a bailiff.

These decisions can be appealed – for example by lodging a complaint against the above-mentioned enforceability clause. That, however, can buy the debtor only a little time. Either way, the next stage will be a visit by the bailiff to the property, and the indebted owner must let the bailiff in. The property is valued and, as a consequence, an auction divided into two stages is announced. The first is an attempt to sell the flat or house for at least 75% of its value (based on the bailiff's valuation); if that fails, the threshold is lowered to 2/3 of the value. If the property is still not bought by anyone, the bank has the right to acquire it for the aforementioned 2/3 of the starting price, which immediately makes it the owner. Another way out is to discontinue the proceedings for a period of at least six months.

Another unpleasant matter in all this is the possibility of evicting the debtor. The new owner of the flat must obtain an enforceability clause from the court. This enables the bailiff to carry out the eviction if the previous owner does not leave the property voluntarily.

WHAT IS A REVERSE MORTGAGE? FIND OUT!

It pays to know more

Now that we know what the consequences of not repaying a mortgage are, we can safely say that the best way out is to contact the bank as soon as possible and try to settle the matter amicably. In the meantime, all that remains is to wish everyone that it never comes to that.

Do you have any more questions about property? Looking for specific information on the legal aspects of buying, selling or renting? Check out the guides by REMAX Gold specialists!