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How to avoid repossession by looking at the installment sale option

These days repossession is very much on the high agenda in the property market. From purchaser looking for properties in execution and property in possession list all the way to people trying to find solutions to repossession or just wanting to buy a property when they can't get a bond or the bank home loans offer are not that great.

There is one subject though that is hardly spoken about and I find that quite sad and funny in the same time.

Lets look at the situation and how or why would an Installment Sale work......

Property owner wants to sell to avoid repossession but, and here comes the big BUT:

  1. There aren’t that may buyers to start with.
  2. Banks no longer give the mortgage bonds they used to and offers fall through and even less offers are presented.
  3. The property value may be too high to current market value so no one wants to buy. 
  4. The owner may be re-financed and the bond too high for the price they are asking in the first place.

Then you look at the buyers, both investors and first time home owners and it looks something like this:

  1. Investors are over exposed from the "boom" time.
  2. They can’t buy the property at current value because they won’t make money.
  3. Investors don’t want further exposure with more bonds.
  4. Investors don’t want the terms of home loans that the banks are offering right now.
  5. Home owners can't get the bond they want right now.

So, the pictures looks pretty gloomy, doesn’t it? No, not really.

The reason why I am saying not really is because both purchasers and sellers (and add to that estate agents) are failing to look at sales in installments.

Why? Because they know very little about this solution and don’t really understand what it entails (and I must admit, installment sales are more complicated than straight forward offers to purchase).

Nonetheless here is what they are missing by not having a look at the installment sales option, which by the way, does not necessarily involve a bank nor cash up front.

What is the benefit of an installment sale for a buyer:

  • The buyer doesn't need a bank, at least for a few years until the time that he may want to raise a bond or just pay the remainder of the property in cash.
  • No stress of trying to find a bond for up to 5 years or maybe never (depending on the plan).
  • No exposure to banks or even a need to apply for a bond.
  • No need to buy the property at current price but future price.
  • The sales is written on the title deed until full transfer.

What is the benefit of an installment sale for a seller:

  • They can sell the property overpriced right now as a future price.
  • They can have someone pay the bond right now and get out of trouble.
  • They can move now out of the house right now if they need to and have a new installment sales owner pay for everything including the bond.

What is the benefit of an installment sale for an estate agent:

  • They close more offers right now instead of having offers fall through.
  • They can get their commission much faster as there is no need to wait for long transfers for months on end.
  • They can save some clients from repossession if they care enough.

Doesn’t this sound like a good solution, win-win-win for all parties? Yes, it often is.

The Problem with Installment Sales

Very few property practitioners understand installment sales and they are a bit more complicated than straight offers to purchase and can have a few pitfalls.

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Anonymous - Mr   | | 2009-04-03 15:27:31

I have a misunderstanding of the installment purchase I think.

If a seller owes the bank R800 000 and his repayments are lets say R12 000/pm. Now the seller sells the house to the buyer via a installment purchase who pays the bond at 12 000/pm. The buyer would have purchased the property after 5 years, but the bond the seller owes the banks would still not be paid off after 5 years.

Can you explain how the installment purchase can help the seller in this case?

Thank You
Mr X   | | 2009-07-14 15:24:32
Property sold via an instalment sale is subject to the National Credit Act. A seller needs to register as a credit provider in terms of the NCA and the sale will be subject to the terms of the NCA. A buyer would have to be credit vetted to ensure he is able to afford the payments to ensure that it is not seen as reckless lending. If seen as reckless lending, problems could arise for the seller should the buyer be in a position that he can't afford the payments. In most cases buyers we have been declined a bond by a bank would not meet the credit appoval criteria in terms of the NCA.
Certain legal complications if the seller or the buyer are declared insolvent.
Stop Repossession - Stop Repossession     | | 2009-08-03 02:59:53
Thanks for the post very interesting. Do you know if the installment method is used in the UK or is it just SA?
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Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved.

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