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 and that you will 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 steps:

• 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.

Save money on your management costs to help avoid negative equity.

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