What Are Mortgage Arrears And How Does A Lender Deal With Them?

Should you ever fall behind with your monthly payments, you will build up mortgage arrears. These are the amounts you have missed and owe, in addition to the outstanding balance.

For a month or two, most lenders will turn a 'blind eye' and perhaps send a letter at most. The amounts outstanding will be awaiting you and your payments, but the lender may not chase too hard.

I think most lenders, even though they are businesses, realise that at times in life some disasters may occur. Things like divorce, illness, unemployment and death can throw life off balance and lenders usually try to appreciate that as best they can.

However, since they are businesses, there will come a time, often within three to six months when the mortgage arrears need to be repaid and the account put back in order.

The time between missed payments and real demands by the lenders will vary in line with their business model and the general economic climate. If times are tough and the economy is in recession, most lenders will be swamped with late payment problems and though they may wish to chase hard, they my simply not have the manpower to do it.

Ultimately, if mortgage arrears are not settled, the lender can pursue you through the courts and potentially repossess your property. Should this happen, they will sell it on the open market, many times at auction, to recover as much as they are able. The funds generated by the sale will be used to repay their loan.

It is worth noting though that when a lender sells a property, they are not always interested in the best price - as odd as this may sound. Lenders routinely write off bad debts, often at a loss to them. Selling the underlying security to a loan is really a last step. If this happens, the lender will often just need to get the property 'off the books' as soon as possible. This is often not good for a borrower.

I ought to point out that court procedings are a very long and drawn out affair. It will usually take over a year to complete and in that time, costs will mount as will late payment charges and interest. Some - possibly less scrupulous - lenders will look to charge compound interest on the interest not paid and their fees and costs. This can become very expensive very quickly.

If you find yourself in this situation, the best advice I can offer is to do everything you can to behave honestly and openly. The lender's staff are people too and they will be much more likely to offer suggestions or extra time periods if they think you are genuine and honest.

This will happen in part simply out of genuine humanity - even people who chase debts sympathise with people who have debt problems. But it is worth noting that most people in debt do not behave openly and honestly. This usually means that the few borrowers who do, will receive better treatment - simply because they stand out from the others!