Explaining how sales in execution notice’s work
If a homeowner defaults on his/her mortgage and no alternative arrangement with the loan provider is made, the homeowner will receive a ‘sales in execution notice’ (SIE). One of the main features of an SIE notice is that it indicates the date that the relevant property will be auctioned off at.
Lightstone explains that a homeowner that receives a SIE notice has a few options that can be followed when receiving the notice.
- An arrangement can be made with the loan provider to continue paying the mortgage. The onus is on the homeowner to make the necessary agreeable arrangement with the loan provider.
- The property can be sold at an auction on the date provided in the SIE notice.
- The property can be sold to a willing buyer within one month of the auction date (but not on the auction date). This is defined as a distressed sale.
- The property can be repossessed by the bank and held to be sold later. This is referred to as a property in possession (PIP).
- The property can be sold between 1 and 5 months after the notified SIE auction date.
- The property can be sold more than 5 months after the notified SIE auction date.
- The proportion of homeowners that received SIE notices that had to sell their properties in the near future (group 2 -6) decreased dramatically from about 71% in 2000 to 36% in 2012.
- The proportion of homeowners whose properties were repossessed by banks (Group 4) decreased from 29% in 2000 to 5% in 2012.
- The proportion of homeowners that received SIE notices whose properties were sold at auctions increase from 12% in 2000 to 19% in 2012 (Group 2).
Are the 10,000 to 30,000 home owners receiving SIE notices a cause for concern? In order to answer this question the amount of home owners who receive SIE notices relative to the total amount of home owners at the time needs to be analysed.
Even though the number of 30,000 defaulting home owners seems high in absolute terms, the group made up 0.5% of home owners in 2009 during the housing crash and 0.25% during the housing boom of 2005. This small proportion in conjunction with the increasing trend in properties not being sold after a SIE notice has the net effect that the proportion of those who sell their houses have been decreasing from about 0.25% in 2000 to less than 0.1% in 2012.