Debt & Finance Mortgage Management

If you have entered into a credit agreement with a financial service provider for a residential mortgage (i.e. a personal loan to purchase a home) it is essential that you actively manage your personal finances to ensure that you stay current with your periodic mortgage payments. Even if you are not currently struggling to pay your mortgage, you will want to make sure you stay in control of your payments and not run into trouble.

If you fall behind on your mortgage payments you may start to build up a debt (i.e. mortgage arrears). In such a circumstance it is likely that your financial service provider will require you to make payments towards your mortgage arrears in addition to your existing monthly loan payments (i.e. enter into a repayment plan) in order to:

Repay your mortgage arrears; and
Ensure continued payment towards your mortgage debt in accordance with the agreed repayment schedule outlined in your credit agreement documentation.

Consumer Affairs cannot understate the value in establishing open and transparent with your financial service provider. A strong relationship with your financial service provider this may prove invaluable in the event that your personal financial circumstances negatively change. By actively communicating your financial service provider may be more willing to work with you and agree to allow you to enter in a mortgage arrears repayment plan and/or amend your mortgage repayment plan.

The importance of open communication with your financial service provider cannot be overstated. Failure to communicate with your lender or financial service provider, when faced with financial turmoil, will likely restrict your ability to effectively negotiate with your financial service provider and potentially result in your home being repossessed as a result.

If your financial service provider has contacted you numerous times over an extended period of time (i.e. numerous points of contact over 90 days), in order to address your outstanding mortgage payments, and you have failed to make genuine attempts to respond to and/or enter into a mortgage arrears repayment plan, it is likely that your financial service provider will pursue legal action in an attempt repossess your home. If your financial service provider repossesses your home the proceeds of sale will be applied towards repaying your mortgage debt.

Before you enter into a mortgage, or any other type of credit agreement with a lender, Consumer Affairs advises that you first determine how much money you have coming into your household on a monthly basis (i.e. income) and what are your monthly financial obligations (i.e. expenses) in order to develop a personal financial budget. For the sake of clarity, personal expenses may include, but are not limited to: food, clothing, school fees and utilities (i.e. electricity, gas, and electronic communications).

As part of developing a personal financial budget Consumer Affairs advises that you keep track of your spending through the use of a spending diary. A spending diary can help you actively track where your money is going and how much you are spending each period (i.e. weekly, monthly, annually). In addition to the active use of a spending diary, Consumer Affairs advises consumers to use an online budgeting tool to help you calculate your budget.

In addition to accounting for your monthly income and expenses, Consumer Affairs advises that you do not forget to account for periodic expenses that will likely arise, such as:

Christmas gifts;
Birthdays gifts and parties;
Motor vehicle insurance policy renewal and licensing;
Life insurance policy renewals; and
Vacations.

Once you have established a monthly budget and accounted for periodic expenses, Consumer Affairs recommends that you make a point to review your budget regularly. If your financial circumstances improve, it is important make sure you are getting the most out of any extra income and strategically consider the impact any additional luxury spending may have on your monthly budget as you may need to rely on the funds used for luxury spending should your personal circumstances change for the worse.

If your personal financial circumstances change for the worse, you will either need to rely on personal savings and/or identify where you can make cutbacks (i.e. luxury spending) so that you can still cover your monthly expenses and pay mandatory mortgage payments. If you find yourself unable to pay your monthly mortgage payments consistently, Consumer Affairs advises that you contact your financial service provider immediately.

Prior to entering a mortgage agreement Consumer Affairs advises potential borrowers to use a mortgage calculator and apply their prospective financial service provider’s proposed interest rate in order to:

Estimate what your anticipated monthly mortgage repayments will be; and
Estimate how much your mortgage repayments will increase if interest rates go up.

When performing this exercise consumers should consider interest rates that are 1% or 2% higher than what have been proposed by their prospective financial service provider. By planning for the unexpected you will be able to determine whether you will be afford to continue to repay the loan if you are subjected to interest rate increases. Consumer Affairs cannot overstate the importance of accounting for interest rate increases as most residential mortgages are subject to a variable interest rate.

If you have entered into a mortgage that is subject to a variable interest rate (i.e. Base + 4.5%, where base in a variable interest rate set by your lender), you must remain mindful that your monthly loan payments will go up if your financial service provider increases the Base rate. If your financial service provider increases the base rate applied to your mortgage your mortgage lender should provide you with advance notice of anticipated interest rate increases, how much your mortgage payments are expected to increase and when the increase is scheduled to take effect.

Although you may be subjected to increased mortgage payments if interest rates go up, it is important to note that if international interest rates fall not all Bermuda based mortgage lenders will drop their rates. Consumer Affairs advises that you remain attentive as to when international interest rates are subjected to decreases and that you contact your mortgage lender to discuss how this international development will impact your monthly mortgage payment.

Appreciating the potential volatility associated with a variable interest mortgage, your financial service provider may be willing to offer a fixed interest rate mortgage. If you enter into a fixed interest rate mortgage your monthly mortgage payments will not change as interest rates increase or decrease. However, although a fixed interest rate mortgage will grant you long-term financial certainty, it is likely that your monthly mortgage payments will be higher than had you agreed to a variable interest rate as your financial service provider will likely charge a higher interest rate initially in order to account for the greater level of financial certainty.

If you have a mortgage with a low starting rate for a fixed period (i.e. interest only, principal only payments for 6 month), Consumer Affairs advises that you make sure you know when the fixed period ends. Prior to end of the fixed period Consumer Affairs advises that you contact your mortgage lender and discuss what your monthly payments will be once the fixed period ends.

If you have been struggling to consistently pay your monthly mortgage payments on time it is possible that you may find yourself falling behind on your mortgage payments (i.e. late or non-payments resulting in mortgage arrears). You can find yourself unexpectedly facing mortgage arrears in the even you have:

Missed one or more monthly payments; or
Been paying less than the required monthly payment specified in your credit agreement.

If you find yourself behind on your monthly mortgage repayments it is advised that you contact your mortgage lender immediately to discuss your financing options and the ways in which you will be able to repay your mortgage arrears, while also continuing to repay your mortgage. Through open communication your mortgage lender will be better equipped to consider financial solutions that account for your circumstances. Failure to actively communicate with your lender may leave you with few, if any, financing options.

If you do not contact your lender to discuss your circumstances, and your mortgage arrears continue to accumulate, your lender will likely make attempts to contact you. If you fail to respond to your mortgage lender’s attempts to address your mortgage arrears, it is likely that following a number of failed attempts to contact you your mortgage lender will take you to court for repossession of your home. If you are taken to court it will likely to be too late to negotiate a repayment plan with your lender and you may end up losing your home.

If you are struggling to pay your mortgage and find yourself behind on your monthly mortgage payments (i.e. in mortgage arrears), Consumer Affairs advises that you immediately contact your lender in order to communicate your personal circumstances and discuss payment options that will mitigate the risk of you falling further behind on your mortgage repayment schedule.

If you are in mortgage arrears you will likely need to negotiate a mortgage arrears repayment plan and depending on the extent of your arrears discuss the possibility of amending your existing mortgage agreement (i.e. refinance and/or adjust the term length and repayment schedule).

If you are not yet in mortgage arrears, but have experienced a change in your financial circumstances which has compromised your ability to consistently make payments towards the repayment of your mortgage (i.e. recently made redundant and no longer have steady income), pro-active communication with your mortgage lender will likely result in your financial lender being willing to propose a greater number of financial options (i.e. amend the terms of your mortgage agreement to either principle or interest only on a temporary basis, extend the term of your loan, etc.).

If you fall behind on your mortgage payments and your mortgage lender thinks you are not dealing with the problem responsibly (i.e. due to a lack of communication), it is likely that they will make a number of attempts to contact you. If you fail to respond to your mortgage lender’s attempts to address your mortgage arrears it is likely that your mortgage lender will take action through the courts. In this circumstance you will likely face limited financial and legal options.

If you are in a position where you have started getting letters and/or legal documents from your mortgage lender, threatening court action in order to repossess your home or any l security used to support your mortgage (i.e. personal motor vehicle, additional property), Consumer Affairs advises that you immediately obtain a lawyer and get help from an experienced debt adviser straight away.

As previously mentioned above, Consumer Affairs cannot understate the importance of open communication with your mortgage lender in the event you are facing financial turmoil; particularly pro-active communication. If you find yourself facing the possibility of missing a mortgage payment, Consumer Affairs advises consumers to immediately contact their financial service provider (i.e. their mortgage lender) and communicate that they are:

Experiencing financial turmoil;
Facing the possibility of being unable to make a mortgage payment (i.e. a full or partial payment) towards their mortgage; and
That they would like to take proactive measures to avoid falling into rental arrears.

Failure to provide advance notice of the possibility that you may not be able to make a mortgage payment on time (i.e. “defaulting” on payment) will negatively impact your relationship with your mortgage lender; particularly if you default on more than one mortgage payment over a 90-day period.

By establishing clear lines of communication with your mortgage lender, prior to defaulting on your mortgage, it is likely that your mortgage lender will make available of number of financial options that will help you navigate your financial issues until they are resolved. Open and pro-active communication will likely result in your mortgage lender being empathetic of your circumstances and may form the opinion that you are acting responsibly.

Although your mortgage lender may be willing to work with you and provide a form of financial relief, your mortgage lender is not obligated to provide financial relief, nor are they obligated to extend such leniency on a permanent basis. Temporary financial relief is intended to provide borrowers with time to find additional sources of income that will afford them the ability to continue making mortgage payments in accordance with the original terms and conditions stated in the mortgage agreement.

Appreciating the temporary nature of such financial relief, eventually the “chickens will come home to roost”. If you enter into a temporary form of financial relief with your mortgage lender, Consumer Affairs advises that you remain mindful of the terms and conditions associated with the temporary financial relief (i.e. the term length of such temporary relief) and use the time afforded to obtain the finances necessary.

Furthermore, in the event that your mortgage lender is willing to offer some form of financial relief Consumer Affairs advises consumers to continue to communicate with their mortgage lender so that their mortgage lender is made aware of any changes to your financial circumstances; regardless as to whether these changes are positive or negative.

If you have fallen into mortgage arrears (i.e. behind on your mortgage repayment schedule) and you have some money to spare each month, you may be able to pay off your mortgage arrears by making extra payments, in addition to your usual monthly mortgage payments.

When you contact your mortgage lender about making additional payments towards your mortgage arrears it is advised that you:

Attempt to persuade your mortgage lender into accepting a repayment plan that is in both of your interests; and
Suggest to your mortgage lender that they accept the repayment plan for a certain period of time, after which they can conduct a review of your repayment history and determine whether further steps are necessary.

If you find yourself in mortgage arrears (i.e. behind on your monthly mortgage payments) are unable to make additional payments towards your mortgages in order to repay the mortgage arrears, you may wish to consider contacting your mortgage lender to discuss the possibility of amending the terms and conditions or your mortgage with the intention of temporarily/permanently reducing your monthly mortgage payments.

Depending on your circumstances and the amount of positive equity you have in the collateral used to secure your mortgage (i.e. your house is worth $800,000, your mortgage is $600,000 which result in positive equity of $200,000) your mortgage lender may be willing to consider your request to reduce your monthly mortgage payment.

If the collateral used to secure your mortgage has negative equity (i.e. the value of your mortgage exceeds the value of the collateral), in order to amend the existing terms of your mortgage you may have pledge additional assets as security.

In either circumstance (i.e. positive equity in existing collateral or pledge an additional asset as security), if your mortgage lender is willing to amend the existing terms and conditions of your mortgage your mortgage lender will likely propose any one of the following financing options:

A temporary period where you may be required to pay interest only (i.e. interest payments which will not reduce the amount borrowed);
A temporary period where you may be required to pay principal only (i.e. payments towards to the amount borrowed absent the inclusion of interest);
A permanent extension of the term length of your mortgage (i.e. adding additional years to the length of your loan and increasing the number of payments to be made); and/or
A permanent/temporary change to the interest rate applied to your mortgage.

If your mortgage lender agrees to allow you to pay interest only for a temporary period of time this will mean that you will have a lower monthly mortgage payment; at the expense of not reducing the amount owed. Once the specified period of time ends you will be expected to resume your previously agreed monthly payments (i.e. principal and interest payments).

If your mortgage lender agrees to allow you to pay principle only for a temporary period of time your reduced monthly payments will go directly toward the repayment of the amount borrowed; with interest the life of the mortgage being deferred till a later date. Once the temporary period stops you will be expected to pay for the deferred interest through an increased monthly mortgage payment going forward.

If your mortgage lender agrees to extend the term length of your mortgage (i.e. reduced payments at the expense of having to make more payments), it is important to remain mindful of the fact that although extending the term of your loan will reduce the monthly mortgage payments this will also result in your mortgage being more expensive for you in the long-term. By increasing the number of payments to be made you will pay more interest on the mortgage than had you not extended the term length of the mortgage.

In addition to the financing options considered above, you could ask your mortgage lender to temporarily/permanently reduce the interest applied to your mortgage. Although such a request is unlikely to be considered and approved (i.e. the mortgage lender generates their profits off of the interest applied), your mortgage lender may agree to such a proposal so long as you have positive equity in your property, or you are willing to provide additional forms of collateral. In such a circumstance your mortgage lender may propose that the term period of the mortgage lender be extended to account for any potential loss of interest earnings.

Furthermore, before you agree to make any changes to your mortgage agreement with your mortgage lender, Consumer Affairs advises that you ask your lender if there will be a fee for this amendment to your mortgage payments (i.e. an administration charge) and confirm how much this fee will be.

It is also important to note that your age will influence your mortgage lender’s willingness to extend the term length of your mortgage. For example, a mortgage lender is not likely to consider extending the term length of a mortgage for a borrower that is over the age of 65 years old. Given the risk associated with extending a loan in this circumstance (i.e. it is possible that the borrower may die before the loan is repaid in full) it is likely that the financial service provider may not be willing to take on such risk absent additional collateral or personal guarantees from other parties being provide (i.e. a pledge over an additional home, or a child guaranteeing the repayment of their parent’s home, etc.).

If you have found yourself in mortgage arrears (i.e. behind on your mortgage repayment schedule) you may be able to repay your mortgage arrears by adding the mortgage arrears to the remaining balance of your mortgage. This is known as capitalizing the arrears or “refinancing”.

However, it is worthwhile to know in response to a refinancing request your mortgage lender may require additional security in order to account for the increased risk of amending the terms and conditions to your existing mortgage agreement.

If your mortgage lender is willing to refinance your mortgage and merge your mortgage arrears with the remaining balance of your mortgage, it is likely that this will result in increased monthly mortgage payments going forward unless the term length of your loan is also increased.

Absent a positive change in financial circumstances (e.g. a new job, a raise in salary, an additional source of income, etc.) if you were unable to consistently pay your prior mortgage payments it is likely that you be unable to consistently pay the new, higher mortgage payments.

Consequently, on order to mitigate the risk associated with the increased mortgage payments, Consumer Affairs advises borrowers to ask their mortgage lender as to whether it is possible to extend the term length of their mortgage as part of the refinancing of the existing mortgage.

By extending the length of your refinanced mortgage you will be able to keep your monthly payments manageable while addressing your mortgage arrears. However, if your mortgage lender is willing to extend the term length of your mortgage you will end up paying more interest over the extended life of your refinanced mortgage than had you not extended the term period.

If your mortgage lender is unwilling to consider refinancing your mortgage, Consumer Affairs advises that you make all reasonable efforts to continue making regular payments to your existing mortgage and start making additional payments towards your mortgage arrears; however small these additional payments may be.

By being able to show that you have made genuine attempts to repay your mortgage arrears, while continuing to make payments towards your mortgage, if your mortgage lender elects to later take you to court for repossession of your home the courts may allow you to stay in your property as long as you agree to comply with a court ordered repayment schedule.

If you are in a situation where your mortgage lender has threatened legal action or has commenced legal proceedings against you, due to your mortgage arrears and ongoing inability to repay your mortgage, Consumer Affairs advises that you immediately obtain the help of a lawyer and an expert financial adviser.

If you have fallen behind on your mortgage payments, in addition to contacting your mortgage lender to confirm your refinancing options (i.e. include your mortgage arrears as part of your outstanding mortgage), Consumer Affairs recommends consumers to consider the benefits of borrowing money from a personal lender (i.e. a friend or family member).

One of the benefits associated with borrowing money from a personal lender is that you will likely be able to negotiate better borrowing terms (i.e. security to be provided, length of the loan and interest applied) than had you refinanced your existing mortgage with a financial service provider. Through greater negotiation power it is likely that:

The loan repayments will be lower and more favorable than those offered by a financial service provider; and
The personal lender will be more understanding of your personal circumstances and be more willing to work with you as you attempt to improve your personal finances.

However, Consumer Affairs advises that you exercise caution when borrowing from a friend or family member and do not borrow money from a personal lender unless you can trust them (i.e. confirm they are not a loan shark or willing to take you to court immediately following a late payment).

Much like borrowing from a financial service provider, before you agree to any terms and conditions with a personal lender Consumer Affairs advises that you review your monthly budget and confirm whether you can afford the cost of paying your existing monthly mortgage payments and your loan with your personal lender at the same time. It may also be a good idea to get advice from a financial advisor. However, this will likely result in professional fees.

If you have agreed to lending terms and conditions with a personal lender, Consumer Affairs advises that you review the terms and conditions of your mortgage agreement before formally agreeing to the loan with the personal lender. The reason for this that it is likely that your mortgage lender has included covenants in your mortgage agreement which:

Restrict your ability to enter into further loan agreements with other financial service providers and/or personal lenders; and/or
Restrict your ability to use the collateral used to secure your mortgage as collateral to secure additional loans.

If your mortgage agreement includes restrictions on your ability to enter into future borrowing, and you enter into a loan with a personal lender without the express consent of your mortgage lender, this may be considered a breach of contract, and your mortgage lender may impose penalties and/or commence legal proceedings (i.e. seek repossession of your home).

Consumer Affairs advises that, after you have reviewed the terms and conditions of your mortgage agreement, you immediately contact your mortgage lender and communicate:

Your desire to enter into a personal loan with a personal lender;
The collateral that will be used to secure your personal lender;
That the money borrowed from the personal lender will be used to repay your mortgage arrears; and
That you are seeking their express permission to enter into the loan with the personal lender.

If upon review of your mortgage agreement terms and conditions it is confirmed that you are not restricted from borrowing money from an alternative financial service provider or personal lender and/or from using the collateral used to secure your existing mortgage for future borrowing, it is still advised that you contact your mortgage lender before entering into the personal loan.

Failure to provide your mortgage lender with advance notice of the transfer of a large amount of funds into your personal account may result in your mortgage lender flagging and/or freezing your account in accordance with their Anti-Money Laundering and Anti-Terrorist Financing policy and procedures.

Consequently, it is advised that you contact your mortgage lender, prior to the funds are transferred into your account, and communicate that you have entered into a loan with a personal lender. This way your mortgage lender has a legitimate explanation as to the source of the funds and can take the necessary steps to ensure your receiving account is not flagged and/or frozen in response to suspected suspicious activity.

If you find yourself unable to pay your mortgage arrears (i.e. refinancing with your mortgage lender, personal borrowing, etc.), and your mortgage arrears continue to accumulate, Consumer Affairs advises that you consider the value of selling your home; especially before your mortgage lender has started legal proceedings in an attempt to repossess your home.

Depending on the market value of your home, and the positive equity that you may have (i.e. the value of your home exceeds your remaining mortgage) the sale proceeds obtained as a result of selling your home may then be used to pay off your mortgage. If after having paid off your mortgage you have funds left over you may also be able to use these funds to pay off other debts.

If you have used your home as security for your mortgage (i.e. a source of collateral commonly known as a “chattel”), your lender will likely have control over the sale of your property. Consequently, in order to sell your home, prior to the banking commencing a possession order, you will likely require written permission from your lender to sell your home.

It is at this stage that Consumer Affairs highlights the importance of the timing of the sale and whether your lender has commenced legal proceedings for “repossession” of your home. If your mortgage lender has started legal proceedings, it is not likely that your mortgage lender will grant you permission to sell your home and that they will likely take control of the sale of your home following repossession.

Furthermore, taking control of the sale of your home is vitally important due to the fact that if your lender successfully gains possession of your home, your mortgage lender is not obligated to sell your home at fair market value. If the mortgage lender sells your home for less than fair market value and the proceeds of sale do not cover the repayment of the entirety of your mortgage you will remain responsible for repaying the outstanding portion of your mortgage.

If you find yourself consistently being unable to pay your mortgage (i.e. in mortgage arrears), you may be tempted to:

Sell your home and apply the sales proceeds towards repaying your mortgage;
Leave your property and hand back the keys to your mortgage lender; and/or
Ignore your mortgage arrears and wait for your mortgage lender to go through the courts to gain possession of your home.

If after considering your financing options (i.e. mortgage refinancing, personal lender) you are of the view that your best course of option is to sell the home, it is important to note whether your mortgage lender has or has not started legal proceedings against you.

If your mortgage lender has not started legal proceedings, you may be in a position where you may be able to control the sale of your home and ensure that you are able to sell your home at a price that will cover the repayment of the entirety of your mortgage.

However, if your mortgage lender has started legal proceedings for repossession of your home, it is unlikely you will not be granted permission to control the sale of your property. If you do not have control of the sale of home, as you likely provided your lender is not incentivized to ensure that your home is sold at fair market value.

Appreciating that your mortgage lender will likely be seeking to minimize its level of risk exposure as quickly as possible, in order to expedite the sale of your home it is possible that your mortgage lender will sell your home below fair market value and that the sales proceeds may not cover the entirety of your mortgage debt (i.e. a “shortfall”).

If your mortgage lender sells your property and the sale proceeds do not cover the entirety of your mortgage, this will result in you having to repay the unpaid portion of your mortgage; either through personal savings, the sale of personal assets and/or the use of a personal loan.

If you wish to ensure that you have some degree of control over the sale of your home, Consumer Affairs advises that you remain mindful of your financial circumstances and know when to “cut your losses” before matters get worse. The sale of your home is often the last resort option for many homeowners and is often something that is not considered until all other options are no longer available or have been exercised.

However, it is important to note that after all other financing options have been exercised (i.e. amended terms and conditions, refinancing, etc.) the sale of your home is likely no longer an option as the mortgage lender has likely begun to consider their legal options and will not likely grant permission for you to control the sale of your home.

If your personal finances do not improve following refinancing your mortgage and/or personal borrowing, and you remain unable to make consistent mortgage payments, it is advised that you contact your mortgage lender before legal proceedings have started and discuss the possibility of selling your home; even though it is likely that the mortgage lender will decline such a request.

In order to effectively take control of the sale of your home, this is likely something that will need to be seriously considered early when mortgage arrears start to accumulate and something that should be discussed with your mortgage lender at the time in which you are discussing your financing options.

If you own your property as part of shared ownership agreement with someone else (i.e. joint legal title with a spouse, family member or friend), all parties involved will usually be obligated to make a monthly payment towards your mortgage.

If you are having financial difficulties that impact your ability to pay your portion of the mortgage it may be worthwhile to consider discussing with your mortgage lender the possibility of selling all, or a portion of, your ownership in the home; either to the other joint owner(s) or to a new owner.

Prior to contacting your mortgage lender to discuss such an option, Consumer Affairs advises that you first review the terms and conditions of your mortgage agreement to confirm whether such an option is available, the restrictions that applied and under what circumstances (i.e. is approval from the mortgage lender required in order to sell your ownership of the property).

If you elect to sell only a portion of your joint ownership of the home to the other joint owner, you will be afforded the opportunity to apply the proceeds of sale towards the repayment of the amount borrowed, which will consequently result in reduced monthly mortgage payments.

Alternatively, if you elect to sell the entirety of your ownership of the property, whether to the other joint owner or to a new owner, the sales proceeds will be used to repay the amount borrowed. If the sales proceeds do not fully repay the amount borrowed (i.e. a shortfall) it is likely that that your mortgage lender will require you to continue to make smaller monthly payments to the remainder of your mortgage until the loan is fully paid off by all joint owners.

It is at this stage that Consumer Affairs highlights the legal impact and differences associated with “joint liability” and “joint and several liability”. Joint liability represents an obligation of two or more parties to pay back a debt. When there is joint liability a creditor can sue either party to the agreement for the full amount of debt outstanding and will usually sue the party that is considered to be the most financially solvent.

For example, in the event that two spouses are jointly liable for a mortgage and one spouse either dies, becomes bankrupt or is made unemployed and unable to continue to make payments towards the mortgage, the financial service provider will have the legal right to choose to sue the surviving spouse for the entire amount of the outstanding loan.

In contrast to joint liability, joint and several liability allows all parties to limit their personal exposure when securing a loan or credit. Joint and several liability allows all parties to limit their liability by only a securing a specified portion of the debt.

For example, three personal investors decide to take out a business loan under the arrangement that they are only responsible for a proportionate share of the debt (i.e. each business partner is limited to having to repay 33.33% of the loan). By securing the property loan with joint and several guarantees, if one partner is unable able to meet their obligation under the loan then the lender would only be able to sue the other partners for their agreed portion of the loan.

It is at this stage that Consumer Affairs heavily emphasizes all consumers to remain mindful of the legal nature as to how they share debts with other persons. When reviewing any terms and conditions with a commercial entity Consumer Affairs advises that you identify whether any shared debts will have “joint liability” or “joint and several liability” and consider what the impact would be if the other person failed to comply with repayment.

If you are party to a jointly liable debt that is not covered by your partner’s declaration of bankruptcy, your partner’s creditors could pursue you for payment of the full amount of any joint debts; particularly if the credit agreement specifies that you both are “jointly liable” and are not subject to “joint and several liability. By entering into an agreement where you share “joint liability” with someone else, you and the other party are effectively agreeing to be individually responsible for the full amount of the debt.

If your partner borrowed money on your behalf and secured the loan with personal guarantee where you and your partner share “joint liability”, without your knowledge, you may be able to dispute your liability. However, in order to effectively dispute your liability you will need to be able to show that you were unaware of the personal loan your partner entered into, did not agree to sharing joint liability and did not sign the credit agreement with your partner’s creditor.

If you find yourself consistently unable to make mortgage payments and/or make payments towards a mortgage arrears repayment schedule and have received a formal warning from your mortgage lender, it is likely that your mortgage lender will start legal proceedings against you in order to gain possession of your home (i.e. start a “possession action”).

Although you may have legal title over your home (i.e. your name is on the property deeds), until your mortgage is paid in full your mortgage lender owns your home (i.e. your home is likely used as collateral to security for lending). The purpose of this section is to provide consumer guidance on how to interact with your mortgage lender in the event they have:

Commenced legal proceedings in order to gain possession of their home; and/or
Been granted possession of your home and is seeking to sell your home in order to apply the sales proceeds toward the repayment of your mortgage.

In addition to allowing each party to state the merits of their case, a review date acts as an opportunity for both parties to potentially resolve the matter without a full court hearing (i.e. taking the matter to trial). Before the review date, Consumer Affairs advises borrowers to:

Carefully read the court papers received from the court;
Carefully read the trial bundle provided by their mortgage lender; and
Obtain independent legal counsel.

It is likely that your mortgage lender has already obtained their own lawyers and are prepared to take the matter to trial if need be. Although obtaining a lawyer will result in you having to pay legal fees, if you go to your review date without a lawyer you will be significantly disadvantaged; especially if you decide to dispute your mortgage lender’s claim and request a trial date. By having their own lawyers, your mortgage lender will have the necessary resources and experience to effectively navigate court proceedings and present a strong legal argument supporting their case.

In circumstances where a borrower does not dispute their mortgage lender’s claim (i.e. does not deny they are behind on mortgage payments), but wishes to remain in their home, in order for any negotiations at the review date to be successful the borrower will need to either:

Evidentially prove that the mortgage lender did not make genuine attempts to negotiate a mortgage arrears repayment schedule;
Provide the mortgage lender with additional security for the mortgage that was not previously offered as part of past negotiations held prior to attendance at court (i.e. a second mortgage on a separate property, personal guarantees from persons not currently providing guarantees).
Provide the mortgage lender with a substantial payment that will cover the mortgage arrears.

Although the parties to a possession order may enter into further negotiations at the review date, it is important to note that your mortgage lender is not obligated to accept your proposals as they may argue that such offers should have been made prior to attendance at court.

If you are able to evidentially show that your proposed solution is reasonable, and your mortgage lender has unjustly refused your proposal, the courts may:

Consider the merits of your proposal; and
Make a suspended possession order.

Consumer Affairs advises consumers that they do not rely on the courts being willing to consider any proposed solutions at the review date. It likely that the courts may be of the view that such proposals to repay your mortgage arrears, or provide additional security, should have been made prior to court. There is a high burden of proof on borrowers to show that there is credible reason why such proposals have not previously been made.

If the courts are willing to suspend a mortgage lender’s request for possession, this means that the mortgage lender’s claim will be paused so long as the borrower complies with the specified terms and conditions outlined in the courts suspended possession order (i.e. monthly payments of a specified amount for a specified period of time).

If your mortgage lender refuses your proposal and the court decides that you are unable to make an acceptable offer (i.e. either repay the arrears and/or provide additional security), the courts may award your mortgage lender an “outright possession order”. An outright possession order states:

That your mortgage lender can take possession of your home; and
That you will have to leave your home by a certain date.

In circumstances where a borrower disputes their mortgage lender’s claim and the court is of the view that both parties’ arguments have merit, the courts may refer the matter to a full court hearing (i.e. take the matter to trial). As part of conducting a full court hearing the courts will:

Oversee a thorough analysis of the arguments and evidence presented by both parties; and
Decide whether or not to grant your lender possession of your home.

If you are disputing your mortgage lender’s claim for possession on the basis that they did not make genuine attempts to negotiate (i.e. failure to communicate through the issuance of a formal warning and willingness to enter into a repayment plan), it is important to note that the courts will likely view this as a weak defense for continuous non-payment of your mortgage. If you are in receipt of court papers it is likely that your mortgage lender has made numerous attempts to work with you.

If following a full court hearing your mortgage lender is awarded possession of your home, and you have not left your home by the date specified in the outright possession order, your mortgage lender will need to apply to the court for a Warrant of Possession in order to have you forcibly removed from your home.

When a borrower wishes to dispute their mortgage lender’s claim for possession of their home, Consumer Affairs advises borrowers to carefully complete the defense form that is to be included with court papers received from of their mortgage lender. When completing the defense form, Consumer Affairs advises borrowers to:

Provide as much detail as possible regarding your financial and personal circumstances (i.e. status of employment, monthly income);
Explain what you have done and/or propose to do in order actively to manage your mortgage arrears;
Identify which mortgage payments you are in arrears of (if applicable);
Outline what actions your mortgage lender did or did not take to communicate their intention to their intention to start a possession claim (i.e. did not propose repayment schedule, did not send formal warning, did not accept additional security proposed to secure mortgage);
Specify which parts of their mortgage lender’s claim they are specifically in disagreement with; and
Attach copies of any documentation and evidence relied upon to support their dispute.

The above list is not a fully exhaustive list of considerations that a borrower should include when completing a defense form and is intended to serve as guidance as each borrower’s circumstances will vary. However, in all circumstances it is important to note that it is not a defence to say you cannot afford to pay the mortgage.

As previously stated above, Consumer Affairs cannot overstate the importance of consumers obtaining their own legal counsel in response to receiving court papers from their mortgage lender. By obtaining your own legal counsel you will be able to ensure that your defense form is completed correctly, and that the strength of your argument is communicated in such a way that it is grounded and supported by long established legal principles and precedent.

After you have carefully completed the defense form with your lawyer, you or your lawyer should submit the defence form in triplicate to the courts within 14 days of receipt of your mortgage lender’s court papers, unless otherwise specified. The reason for the deadline to submit your defense form is so that the courts and your mortgage lender are afforded the opportunity to review your defense prior to your review date.

If you miss the deadline to submit your defense form Consumer Affairs advises that you submit your defence form as soon as possible. When you submit your defense form remember to keep a copy for yourself as you will likely need it to rely on it later in court while in attendance for your review date.

Upon submission of a defense form it is essential that you attend court on your review date. Failure to attend court on the review date will likely result in your mortgage lender being awarded judgement in default and consequently an “outright possession order”.

If following presentation of your defense at your review date the court is of the view that both parties’ arguments have merit, the courts may refer the matter to a full court hearing (i.e. take the matter to trial). It is at trial that the courts will:

Conduct a thorough analysis of the arguments and evidence presented by both parties; and
Decide whether or not to grant your lender possession of your home.

If you decided to not obtain a lawyer prior to your review date (i.e. legal guidance in completing and submitting your defense form and supporting evidence), Consumer Affairs highly recommends that you obtain a lawyer if your matter is set for a full court hearing.

Although obtaining a lawyer will result in you having to pay legal fees, if you go to a full court hearing without the presence of your own lawyer you will be significantly disadvantaged. By having their own lawyers representing them in court your mortgage lender will have the necessary resources and experience to:

Effectively navigate court proceedings; and
Present a strong legal argument in support of your mortgage lender’s possession action.

If your matter is referred to trial (i.e. a possession hearing), Consumer Affairs advises that you prioritize attending the possession hearing. Failure to attend the possession hearing will likely resort in the court granting your mortgage lender with an outright possession order (i.e. your mortgage lender will have the legal right to force your eviction and sell your home).

As part of your pre-trial preparation, it is advised that you take time to familiarize yourself with the facts of the matter and the supporting documentation and evidence that was provided to the courts (i.e. your evidence and your mortgage lender’s evidence). Such information could include:

The defense form if you haven’t already sent this in;
A financial statement (i.e. the money you have coming in and going out of your household);
Any letters between you and your mortgage lender showing how you have tried to make genuine attempts to negotiate payment of your mortgage arrears;
Proof of any payments towards mortgage arrears you have made since the claim for possession of property was issued;
Written confirmation of any lump sum payments you are waiting for (e.g. money you're owed in a will or for work that you have done for someone); and
Your mortgage lender’s trial bundle.

If you are unable to attend the possession hearing Consumer Affairs advises that you:

Inform the court as soon as reasonably possible; and
Explain why you are unable to attend and request a new trial date.

Although you may provide the courts with adequate advance notice of your inability to attend the possession hearing, in order for the courts to be willing to consider your request for a new trial date it is likely that they will require you to provide supporting evidence justifying while you were unable to attend court (i.e. hospital bill for injuries sustained as a result of the motor vehicle accident, medical certificate, police report of the accident, etc.).

If you have appointed a lawyer to act on your behalf in your possession hearing, Consumer Affairs advises that you contact your lawyer prior to the trial date to confirm that they will be in attendance and to discuss your matter as part of advanced preparation. Before you go to the possession hearing Consumer Affairs advises that you confirm where the possession is schedule to be held and that you leave yourself plenty of time to arrive the possession hearing early (i.e. 5-10 minutes).

It is important to note that if you arrive at the possession hearing late you may not be allowed to enter the court room, which may likely result in your mortgage lender being granted a possession order. Tardiness, absent a legitimate reason, will likely be frowned upon and negatively impact your ability to present your argument in court. By arriving to your possession hearing early, this will not only ensure that you are afforded your day in court, but this time may also be used to further discuss your matter with your lawyer prior to the commencement of the possession hearing.

If you have any special needs (i.e. wheelchair access, hearing and vision impairment, translator, etc.) Consumer Affairs advises that you contact the court before the possession hearing to find out if and how the court can help accommodate your needs.

When you arrive at the court room it is advised that you find the waiting room and inform the court assistant that you are there and for which matter you are attending. The court assistant will tell you where to go and what to do. When you attend court Consumer Affairs advises that you remain mindful of the fact that court delays can occur and there may be circumstances where you find yourself having to wait for an extended period of time.

The solicitor for your mortgage lender may approach you in the waiting room to try to negotiate a mutually agreed mortgage arrears repayment schedule and/or discuss additional collateral to secure your mortgage. However, if the mortgage lender’s lawyer does attempt to enter into negotiations do not be tempted to make or accept an offer that you cannot afford.

Most possession hearings are held in private in the judge’s “chambers”. The judge is obligated to carry out the possession hearing in way they think will be fair and equitable to both sides. If you do not have a legal adviser with you the judge will usually provide assistance with how to handle the procedure of the hearing, the kind of evidence you can provide and how such evidence may be communicated.

While at a full court hearing your mortgage lender’s legal representation will be afforded the opportunity to speak first and present their case. Consumer Affairs advises that you take notes of anything they say that you disagree with. Once your mortgage lender has presented their argument you will be afforded the opportunity to make a rebuttal and provide statements of fact supporting your argument.

If there are no complicated issues of law to decide the judge will usually make a decision there and then, provided that they have been provided with enough information from both parties prior to the hearing. The decision the judge makes is called a judgment.

The type of judgement made by the court will depend on the facts of the matter and whether or not you are able to come to an agreement with your mortgage lender to pay off the arrears. If you are able to make an acceptable offer to repay the arrears and/or provide additional security the court may issue a suspended possession order.

However, if the judge decides that you are unable to make an acceptable offer to repay the arrears the courts may issue an outright possession order. This is an order which affords your mortgage lender the legal right to take possession of your property and will obligate you to leave your home by a certain date. If you have not left your home by the date on the outright possession order, your mortgage lender will need to apply to the court for a Warrant of Possession before you can be evicted.

If your matter is more complicated the judge may not be able to make an immediate decision. In this situation the judge may put the case on hold (adjourn the case) and give both parties directions as to what will happen next. Following providing the directions orally in court, the court will confirm these directions in writing later.

Although you may dispute your mortgage lender’s claim for possession, there is the possibility that your argument for maintaining possession of your home is weak. Prior to, or during the trial process, you may be tempted to just leave the property and hand back the keys to your mortgage lender before they get an outright possession order. If you decide to do this, you will still:

Be responsible for mortgage payments, buildings insurance and other costs until the property is sold; and
Have to make up the difference if the sale doesn't make enough to cover what you owe.

If the court has granted your mortgage lender an outright possession order, the order will specify a date by which you should leave your home (i.e. 28 days after the hearing). If you require additional time to leave your home (i.e. in order to arrange for the removal of your home contents, or to find alternative accommodations) Consumer Affairs recommends that you write to the courts as soon as reasonably possible and request for an extension to leave the premises.

Although your mortgage lender will not be able to forcibly remove you from your home if you fail to leave by the date on the possession order, your mortgage lender will likely apply for a “Warrant of Possession”. By obtaining a Warrant of Possession your mortgage lender will be able to appoint a court bailiff to physically evict you from your home.

If your mortgage lender appoints a bailiff and instructs them attend your home, in conjunction with a Warrant of Possession, the bailiffs have to provide you with a “Notice of Eviction” prior to attending your home and overseeing your eviction (i.e. advance notice that the bailiff will be evicting you from your home so that you can prepare accordingly). A Notice of Eviction is typically served at least 14 days prior to eviction and will state the date and time your eviction will take place.

Upon receipt of a Notice of Eviction Consumer Affairs advises that you carefully consider your available housing options. Depending on Bermuda’s housing market at the time of your eviction, the number of options may not fit your needs or fall within your monthly financial budget.

Much like requesting an extension of a possession order (see above), if you receive a Notice of Eviction and require additional time to leave your home Consumer Affairs recommends that you immediately write to the courts and request for an extension of the Notice of Eviction date. If the eviction date is postponed to another date the bailiff must give you at least another 7 days’ notice.

If you experience difficulties in finding a home prior to your eviction (i.e. too small/large, outside of financial budget, not handicap accessible or friendly for physically impaired tenants), Consumer Affairs advises that you exercise hesitancy in signing a long-term tenancy agreement. Entering into a long-term agreement with a home that does not fit your needs, or is outside of your monthly budget, will likely result in further issues in the future.

If possible, Consumer Affairs advises that you consider alternative, short-term housing (i.e. a vacation rental unit, shared living accommodations with roommates, family member homes) until a more appropriate home becomes available.

If your mortgage lender has been granted a possession order, you will still be responsible for the mortgage payments, the cost of repairs, maintenance and home insurance until the property is sold; regardless as to whether you are still living there.

Upon receipt of a possession order Consumer Affairs advises that you check your insurance policy to see whether it is still valid if you're not living there. Alternatively, if your insurance policy does not provide residential home coverage if you are not in occupation, or do not possess ownership, your mortgage lender may insure the property themselves and pass the costs on to you.

Once your property has been sold your mortgage lender will apply the sale proceeds as follows:

Repay your mortgage from the proceeds of the sale;
Repay any legal and estate agents' fees associated with the sale of the property;
Repay any insurance and maintenance costs incurred prior to the sale of the property;
Repay any other lenders if the property has been used as security for loans held with other financial service providers;
Transfer any remaining sale proceeds to you.

Your mortgage lender does not have an obligation to sell your property at fair market value. This means they can try to get the best price they reasonably can for your property. However, your mortgage lender will likely try to sell your property quickly and in doing so may be willing to sell for less than fair market value. If your property is sold for less than fair market value there is the possibility that the sale of your home may not cover the remainder of your mortgage.

If the money from the sale of the property is not enough to repay what you owe, you will have to pay the difference. This is called a shortfall. Your mortgage lender will send you a bill for the shortfall. If you are unable to make an arrangement to repay the shortfall, your lender may go to court to force you to pay the shortfall amount.

For example, you may have purchased a home for $800,000.00 and your mortgage lender may sell the property for $600,000.00. If you still have $700,000.00 left on your mortgage at the time of sale you will still be obligated to repay your mortgage lender the remaining $100,000.00 as a result of the sale proceeds not repaying the entirety of your remaining mortgage.

If you don't pay off the mortgage shortfall, and then attempt to buy another property, the mortgage lender of your first property may take court action against you. If the mortgage lender of your first property obtains a court order against you, they could then apply for a charging order against your new property.

This means that when you sell the new property, the proceeds of the sale will be used to repay the shortfall. It is also possible that your mortgage lender of your first property could get a court order which forces the sale of your new home to repay the debt on the previous one.

Mortgage Management

Overview

Financial Budgeting and Mortgage Payments

Planning For Mortgage Payment Increases

Mortgage Arrears

Mortgage Arrears and Open Communication

Mortgage Arrears and Extra Mortgage Payments

Mortgage Arrears and Reduced Mortgage Payments

Mortgage Arrears and Refinancing

Mortgage Arrears and Selling Your Property

Mortgage Arrears and Home Repossession