If Your Home Is Repossessed Do You Get Any Equity?

What is a Home Repossession?

Home repossession occurs when a borrower is unable to meet the repayment obligations of their mortgage. As a result, the lender takes back possession of the property, aiming to recover the outstanding loan amount. It is usually the last resort, after a series of missed payments and legal actions, culminating in the homeowner losing their property rights.

What is Property Equity?

Equity, on the other hand, refers to the portion of the property's value that the homeowner truly owns. This is the difference between the market value of the property and the remaining mortgage balance. For instance, if your home is valued at £300,000 and your remaining mortgage is £200,000, your equity would stand at £100,000. Equity is a homeowner’s financial stake in the property, and it becomes a critical asset in situations involving repossession.

What Happens to Your Equity When Your House is Repossessed?

A common misconception during repossession is that the lender claims not only the home but also the equity within it. Fortunately, that is not the case. 

The equity you have built in your home remains yours, but there are certain steps and processes that take place.

Once a lender repossesses a home, their first objective is to sell the property. The sale typically happens through traditional estate agents, but in some cases, to expedite the process, they might sell the property at auction. Your mortgage lender only wants to recoup their money and cover the unpaid debt, which means they will sell the house for the best possible price under the circumstances. If the sale proceeds cover the mortgage debt and additional costs, any remaining amount – your equity – will be returned to you.

However, it is important to note that the equity you receive may differ from what you initially estimated. This is because the sale price might not match the full market value. 

The final sale price can be impacted by:

• Market conditions
• The urgency of the sale
• Auction discounts

If your home sells for less than you owe, you may face a situation known as a “mortgage shortfall.” This can affect the amount of equity you might have expected.

Factors That Can Reduce Your Equity

Several factors can erode your equity during the repossession process. One significant factor is the accumulation of legal fees and additional costs tied to the repossession process. Once the lender initiates legal proceedings, interest continues to accrue on your mortgage debt, potentially eating into the equity you've built. Moreover, legal costs incurred by the lender are typically passed on to you and deducted from the eventual sale price of your property.

Read More: How Long Does Repossession Take?

After repossession, the lender assumes responsibility for the property until it is sold. During this period, any necessary repairs, maintenance, or emergency work must be carried out to ensure the home is sellable. These repair costs, alongside basic upkeep expenses, are added to the outstanding mortgage balance, further reducing the equity payout.

In some cases, the sale proceeds might not cover the entire debt. If the property is sold for less than the mortgage owed, you are left with a mortgage shortfall – the remaining balance that is still due. While some lenders may agree to write off this debt, others might continue to pursue repayment, meaning your equity might not provide the financial cushion you anticipated.

Options for Protecting Your Equity Before Repossession

While repossession is a stressful situation, homeowners do have options that can help them preserve as much equity as possible before losing their home. 

Selling Your Home

One of the most effective strategies is selling the home before repossession. If you're aware that keeping up with mortgage payments is becoming increasingly difficult, selling the house yourself allows you to control the sale process. This way, you can aim to achieve a higher market price, ensuring a better return on your equity.

Communicate

Another option is to negotiate directly with your lender. Open communication can sometimes lead to modified payment plans, grace periods, or restructuring of the loan, giving you time to sell or find alternative financial solutions. Many lenders prefer working with homeowners to avoid the lengthy and costly repossession process.

External Help

Homeowners can also explore various financial assistance programs that may provide temporary relief. Some government or nonprofit organisations, such as Shelter or StepChange, offer aid to help prevent foreclosure or repossession. These programs may assist with payments or offer restructuring options to protect your home and your equity.

Get Help With Repossession

While repossession is an unfortunate outcome for any homeowner, understanding the process and the impact on your equity is essential. 

What is critical is to get help before your home is repossessed. Speak to expert advisors at Repossession Expert. We help people going through repossession and can even stop repossession in its tracks. 

Call our hotline 24/7 and get help now: 0800 298 0571