Bank filing a Legal Case for Non-Payment of Mortgage Dues: Steps to Deal with It

COVID-19 has put many in an unexpected spot. Many people with otherwise respectable financial records now have to face the uncomfortable reality of missed mortgage payments and legal actions by their lenders. Let us understand the steps taken by banks to deal with missed mortgage payments and what borrowers can do to prevent/deal with such scenarios.

Bounced Security Cheques Explained

When taking a new mortgage loan, it is standard practice in the UAE for the borrower to give a security cheque to the lender.  Lenders use these security cheques in case the borrowers fail to fulfill their mortgage commitments. However, for many, lenders never have to use these security cheques during the mortgage’s tenure.

Sadly, COVID-19 has caused many firsts. Many who have suffered from job losses and pay cuts are missing mortgage payments. Consequently, lenders have no choice but to use every legal alternative possible to recover their dues. If the borrower misses their installments for a certain period (typically three months), the lender sends payment reminders.

If the default continues, lenders will deposit the borrower’s security cheque in the bank. If the security check bounces (is returned for lack of funds), it has many negative implications for borrowers.

Implications of a Bounced Security Cheque

In the UAE, a bounced security cheque is a criminal offense. Depending on the cheque amount, the borrower can get a jail term and/or face penalties.

Also, the borrower is still obligated to repay the original amount. If the borrower cannot repay the loan amount due, the bank can take legal action to take possession of the mortgaged property to recover their loan.

A bounced check also brings down the borrower’s credit score as it is recorded in the borrower’s credit report.

A legal case can also affect the borrower’s future employment as their prospective employer will know a pending lawsuit against their name.

Best Practices for Borrowers

Here are the proactive steps borrowers can take to prevent the worsening of their debt situation with their mortgage lender.

Avoid Missing Mortgage Payments

In the first place, you need to make sure you are not missing your mortgage payments. If you are going through financial hardships, try to cut down on other expenses not to compromise your mortgage payments.

Take Advantage of the Payment Holiday Scheme

If you think your job is in danger or you are struggling to make your mortgage payments, discuss this situation with your bank at the earliest. UAE’s Central Bank has allowed a payment holiday for those whose incomes have been hit by COVID-19. If you are eligible, you should try and benefit from the payment holiday option. This arrangement will provide you some relief and give you time to sort out your finances.

Negotiate a Settlement with Your Bank

If you cannot make the repayments on time and your security cheque has bounced, you need to discuss a debt settlement negotiation with your bank. A loan restructuring program is in the best interest of both parties.

Contact FREED for a Mortgage Debt Management!

FREED provides professional mortgage debt management services to borrowers at all stages of their mortgage repayment struggles. FREED’s team has more than 40 years of banking and real estate experience in the UAE. FREED’s team has helped hundreds of borrowers reach debt settlement negotiations with their lenders and avoid hardships such as jail terms, legal cases against their names, and the lowering of credit scores.