This fact sheet is for information only. It is recommended that you get legal advice about your situation.
This fact sheet should be read with the following fact sheets:
Tom & Sarah have a home loan of $350,000 with BIG BANK. Tom has now got cancer and he cannot work. Sarah has a casual job but spends most of her time caring for Tom and their two young children. They cannot afford to make their loan repayments. Worse, Tom has been told his treatment will be on and off for possibly years to come.
DO I NEED TO SELL MY HOME?
You need to consider selling your home if:
- You cannot afford your loan repayments
- You will be unable to afford your loan repayments for some years to come
You need to make this decision as early as possible because: it is better to sell your home yourself rather than have the lender sell the home for you. You are more likely to get a better price for your home and avoid lots of legal costs if you sell your own home.
I HOPE TO BE ABLE TO MAKE MY LOAN REPAYMENTS SOON!
The decision whether to sell your home is most difficult when
- You are unemployed and trying to get a job, or
- You are ill and trying to get well but you just don’t know when you will be well, or
- You are waiting for a compensation payment.
In these situations you are hoping that you can make the loan repayments soon but you just don’t know when this will happen. The difficulty is that as time goes on things are going to get worse and you will get further and further behind on your loan repayments and incur lots of extra interest.
In these circumstances, it is recommended that you:
- Make a repayment arrangement with the lender for up to 6 months;
- If by the end of the 6 months you still cannot make the loan repayments you should put your home on the market;
- Go back to the lender and negotiate a further arrangement on the basis you are selling your home.
REMEMBER: If you get a job, get well or get a large lump sum of money before your home sells you still have the option of trying to negotiate a further arrangement on the basis you can now pay the loan (as long as the lender does not have a court judgment).
IMPORTANT: You should file in the independent external dispute resolution scheme (EDR), the Australian Financial Complaints Authority, if:
- You are unable to make a repayment arrangement with the lender, or
- The lender is threatening to commence legal action, or
- The lender has issued you with a Statement of Claim but has not obtained a court judgment.
BY WHEN DO I HAVE TO MAKE A DECISION?
You need to make a decision to sell your home as early as possible but preferably BEFORE the lender commences any legal proceedings. You can ask for time to sell at any time, but the lender is less likely to agree later in the enforcement process and enforcement costs will be added to your loan as the legal proceedings progress.
You need to give yourself as much time as possible to sell your home and get a good price for it.
I’VE DECIDED TO SELL MY HOME WHAT DO I DO NOW?
You need to place your home on the market. You need to price the home realistically so that it will sell but for the best price possible. If you are using a real estate agent you should explain what time frame you need to sell the home within. This will usually be under 6 months but could be under 3 months depending on what arrangement you make with your lender.
You need to give copies of evidence that you are selling your home to the lender. This evidence should include (where available):
- Copy of the contract with your real estate agent
- Evidence of advertising of your home
- Front page of the contract of sale
- Marketing plan
Negotiate a repayment arrangement on the grounds of financial hardship with your lender. See Fact Sheet: Financial Hardship and Sample Letter: Letter Requesting Hardship Variation.
You are negotiating the arrangement on the basis that:
- You are in financial hardship
- You can make regular repayments of what you can afford until the home is sold
- You have a reasonable time to exchange contracts for the sale of your home (ask for 6 months but you may need to consider agreeing to 3 to 4 months)
- When the home is sold your loan will be repaid.
If the lender:
- Will not agree to the proposed variation, or
- Threatens legal action, or
- Commences legal action
You need to consider filing in EDR and get advice.
WHAT IF MY HOME IS WORTH LESS THAN THE AMOUNT OF MY LOAN?
If you think your home may be worth less than the amount you owe on your home loan, get legal advice.
NEED SOME MORE HELP?
Last updated: October 2018.