Rent covers mortgage - who owns negative equity?

Hi
I have looked for similar scenario but couldn't find one. Any perspective much appreciated:

Bought house with ex in 2007 and split and moved out in 2009, around time of breakup mortgage went into 2 months arrears. I moved back in shortly afterwards in 2009 and arranged with bank to go interest only and repay arrears. Ex has not contributed in any way since he moved out and I rented out rooms in house to meet mortgage payments.

In 2010 I moved out and rented house out completely to members of my family who are still there today. From 2010 - 2014 the average market rent was less than mortgage repayments so I paid shortfall. I had 6 mths interest only period again in 2012.

Since 2015, improved rental prices mean I could now charge an extra €200pm rent if I rented to house out to strangers. You could say my family members are getting mates-rates, however I have not had the money to make any major improvements in the house to upkeep and modernize. While my family are happy living in house, I would need to upgrade kitchen, bathroom etc in order to rent to non - family. I have increased their rent slightly so this covers the mortgage payment to the bank but I still pay the LPT, insurance etc shortfall (approx. €100pm - my choice you could say but im in an awkward position of not wanting family to move out and have to pump money into home improvements without fully understanding my rights/position). Ex has categorically said he will not assist with any improvements.

I would really appreciate some opinions on where I stand with the ex:

House is 80k in neg equity. Bank will not agree to take ex off the deeds and he is happy to sit pretty until the neg equity is paid off and then look for his half of any equity. He has told me his will do this.
Does the fact I have the house rented and I am not personally paying off our joint negative equity mean he is entitled to the same equity as me? Am I basically a caretaker for his asset since I moved out?
Can I claim additional equity for maintenance and shortfall paid?
I have sought legal advice but didn't get a resolution one way or another. Solicitor said ex could argue I don't live there so am in same position as him.

Impartial views/opinions much appreciated.
thank you.

I'd take a step back for a minute.

You jointly own a asset with your ex. You are jointly liable for the loans ect don't forget you are only liable for tax on your half of the rent. Have you registered the tenants with the PRTB?

So summarise up the payments that you are contributing. You are either owed this money from the rent or from the proceeds of sale.

There is no clear answer to your question.

Your ex owns half the house. He is entitled to move back in at any time.

Your ex is responsible for the full mortgage, jointly with you. As long as you are paying, the bank doesn't care about him.

Roll forward x years, and you have a mortgage of €100k on a house worth €200k.

The situation has not changed. He can still move back into the house if he wants. He is still responsible for the mortgage.

If you want to sell the house, you will need his agreement. He will probably insist on half the proceeds.

I am not sure that there is anything you can do about it. Continue to pay interest only. Don't pay anything off the capital, because by doing so, you are effectively increasing his equity in the property.

I am not sure that the bank will be satisfied with interest only indefinitely. At that stage, things will come to a head.

You could bring them to a head earlier, by going into arrears. That will affect his credit rating. He may then insist on selling the house. But you will be both jointly responsible for the deficit.

It's a very unsatisfactory situation, but there isn't an easy and fair solution.

Agree with Joe's suggestion. Keep very clear accounts. So if you do end up in court, you will be able to substantiate your claim for a greater share of the equity.

Brendan

Thank you both for your replies.

To clarify im not paying interest only (was only for a six month period in 2012) so am meeting full mortgage repayments to bank.

As next step I was planning to get my solicitor to write to ex re deed of assignment to give up his interest in house (which he has said he wont do) and also send him the bill for maintenance on house (he wont pay but at least Ill have a record of asking him if and when it goes to court).

the solution I keep coming back to is to sell asap when it comes out of NE and try and recoup a greater share of the equity. Would the courts be likely to do this, considering he can argue I had the house rented and chose not to increase the rent?

Hi Mable

Tough one.

Forget about the courts. How much do you think that is going to cost you? You simply can't win in the courts system. You both lose.

You should reduce your payments to the rental income. That is your total payments - LPT, maintenance, tax, etc.

The bank might huff and puff, but there isn't much that they can do about it - assuming it's your only home. They might put a bit of pressure on him as well.

If you damage his credit record, he might well see sense and do some sort of deal with you.

I presume you have a cheap tracker? If so, then it's a great investment and you should not be in a hurry to sell it.

Brendan

Mable, you say you searched for a similar story and didn't find any, did you read the Case studies that Brendan has posted at the top of this forum? Coz your story is identical to mine
http://www.askaboutmoney.com/thread...x-off-the-deeds-and-mortgag-with-ptsb.179336/
I asked my solicitor about taking my ex-gf to court and I was quoted in the region of 15k or more for court case, and if you lose you possibly face paying their court fees as well? So as BB said, forget about court. Why would you pay 10s of thousands for a court case for an asset worth minus 80k? Makes no sense. Also makes no sense for an asset worth 0k (i.e. when you sell it pays off mortgage therefore essentially worth nothing)
I think court cases are only taken by very wealthy couples who own large fully paid off properties. They are not taken by Celtic tiger neg eq mishaps such as us.
You should stop paying a cent more than the rent to the bank. Anything else you pay is just paying off your ex's negative equity - which is pointless. You could wait til the neg eq is paid off and then sell, but how much of your own money will you have pumped into the house before that occurs, and you'll have nothing to show for it.

In relation to getting a higher rent. I see no negtive argument in relation to this, I have tenants at a below market rent as I don't increase rents and won't evict and they are good tenants who mind the place and pay rent on time so it is a good logical business decision for me and ditto for you in keeping family there. You are also saving on paying an agent commission. Why did you think up this option by the way, did your ex say it to you?

Personally I'd not be willing to continue with the way your ex is playing ball. Who has more to lose, you or him. You have the nuclear option, (shattering his crredit rating) especially if he is worried about his credit rating or if he has a good job and you don't and especially if he's bought another property with someone else.

You also have accountant Jo 90's advice about tax, that's a nice little nail to your ex too if he doesn't start to play ball. And interest and penalties can quickly mount up. Not a lot of people realise that even rents that don't cover the mortgage and bills can still have tax liabilities.

Joe_90 said:

. Have you registered the tenants with the PRTB?

.

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Just an aside Joe 90 on this, I was listening to either RTE or Newstalk money item. A tax back company speaking and mentioned that he had a client who didn't register with the PRTB who had to pay back 10K. I thought of you guys on here and the fact we were told you can backdate the PRTB easily and wondered why the so called expert didn't know that and didn't advice his client of same.

thanks for input.
ok will put court out of my head, not a feasible option as you point out.
I have definitely been taking the easy option until now, just taking care of the house myself, less hassle than arguing over shortfall etc with an ex.
Yes, Bronte - ex did tell me to increase the rent if there was a shortfall and not to come looking for cash from him (cheek). The last conversation I had with him a few months ago was he was happy to let my family live there, its my own problem if Im not charging enough rent to cover the mortgage and he owns half of house until we sell.

You are right, I have more to lose and he only benefits from my inaction. But I am terrified of ruining my own credit rating by taking the nuclear option - Im the one with the good job and the savings. He doesn't have either as far as I know so if I was to stop paying or force sell at a loss it may be me the bank come after anyway if he cant pay? I'm planning to threaten this anyway in the hope he will sign Deed of Transfer to get something in writing while the bank refuse to remove him from the mortgage.


On Joe90's note above - I havent registered the tenants with the PRTB, and I still get full TRS.. my solicitor told me not to worry about this as the house is rented to close family and it shouldn't be an issue. it was always a concern of mine that this may come back to bite me.. am I right?

I think you need a new solicitor!

I don't mean to scare you but failure to register a tenancy with the PRTB may ultimately result in a criminal conviction. A person, if convicted under the Residential Tenancies Act 2004 for failing to comply with a notice, faces a fine and/or imprisonment, along with a daily fine of €250 for a continuing offence, the current fine is up to €4,000 and or 6 months imprisonment.

You are also obviously liable to repay any TRS received since you vacated the property.

Ok Sarenco ease up on the legals, very very unlikely the PRTB will go this far, and that's if they find her.

Mable you are better off doing things legit, and the 75% tax relief is better than TRS.

Your ex I see is a smartipants, how much your time and effort to organise the rental, easy for him to say increase the rent. You however gave him on the tax, that might make him pull up his socks.

Your solicitor won't be there if you get caught by revenue, woeful advice.

Yes the bank will go after the person with the money and good job. Time to know what your ex is doing for a living etc.

Bronte said:

Ok Sarenco ease up on the legals, very very unlikely the PRTB will go this far, and that's if they find her..

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Well, the PRTB has actually been pretty active in prosecuting failures to register and they publish relevant court decisions on their website. There are any number of ways that an unregistered tenancy can come to the attention of the PRTB.

In any event, I certainly agree that going legit makes a lot of financial sense, aside from everything else.

I'm amazed that any solicitor would advise a client not to worry about breachng a law - I'll bet that advice wasn't in writing...

Bronte said:

Just an aside Joe 90 on this, I was listening to either RTE or Newstalk money item. A tax back company speaking and mentioned that he had a client who didn't register with the PRTB who had to pay back 10K. I thought of you guys on here and the fact we were told you can backdate the PRTB easily and wondered why the so called expert didn't know that and didn't advice his client of same.

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Well if someone had been remiss and had not registered since say 2007 and had claimed interest each year since then.

If a Revenue auditor disallowed the interest on the basis that the taxpayer was not entitled to it and raised assessments for the years going back to 2007. The taxpayer could go back and register the tenancy in order to get the deduction but claiming a deduction on a return over 4 years ago is not allowed so they could end up with a liability on older returns.

That's a very good point Joe 90. Of course I personally think that if revenue goes back 6 years and finds something that you missed to report and they add it back into your income you should also be allowed subtract any cost you also missed.

Sarenco said:

Well, the PRTB has actually been pretty active in prosecuting failures to register

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Wait a sec now Sarenco, surely the PRTB first of all sends you a letter, I'm sure there must be a long procedure before they go down the court route. Any landlord that ignores letters like that deserve to have themselves taken to court. I'd also imagine those are landlords who don't have mortgage interest and don't give a hoot therefore about the PRTB.

Bronte said:

Wait a sec now Sarenco, surely the PRTB first of all sends you a letter, I'm sure there must be a long procedure before they go down the court route. Any landlord that ignores letters like that deserve to have themselves taken to court.

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There is certainly a preliminary procedure that must be followed by PRTB - that's why I said that failure to register may ultimately result in a criminal conviction. I didn't mean to give the impression that failure to register will inevitably result in a spell in the Joy!

Sticky one MabelQ.
So your ex doesn't have a job or any savings. He sounds like he's unlikely to be applying for another mortgage anytime soon then. He probably doesn't care about his credit rating being affected so?
So although you can threaten him with that, he may not care.
You could just reduce your mortgage payments for a few months and shake him up a bit. Then go back to full payments & pay the arrears off ASAP. That's what I did. 1 month of missed payments was enough to make my ex crack.
In your case the rent from your family, even though it's 200p/m below market rates, covers the mortgage. That's a great position to be in. So what's coming out of your own pocket is the LPT, house Insurance etc. You say this amount is approx 100 p/m.
One route you could go as has been discussed already is you reduce mortgage payments to the rent you receive minus the shortfall. You will fall into arrears. However if you go down this route the negative equity will never be paid off. You'll be stuck in this limbo forever. I think it's one way to go to see if it can force your ex to sign the Deed of Assignment (by the way I know nothing about these I assume they are legally binding?) but I don't know if it's of much use to you as a long term strategy.

Re the TRS. Whatever about pretending it's still your principal private residence, you are definitely not still entitled to claim TRS for your ex. Your TRS should have halved when he moved out. If he applies for a social welfare payment like rent allowance they could detect that he is already registered for TRS on your house, then you'll get a letter from them looking for that TRS to be paid back (as has happened to me and others on here). If he's out of work this sounds quite likely to happen?

Where are you getting your valuation data for your house from by the way? Are you sure it's accurate?

Not that I'm encouraging landlords to rent out shoddy properties or anything but are you sure you'd have to spend as much on refurbishments as you think in order to rent out your house? Renters in the main cities anyway are desperate these days.

Because you could also go down this route: get your family out, do a patch up job on the house, register with the PTRB, sort out the TRS and rent the house out for full market value. Your mortgage will go up due to changing the TRS status (but TRS has reduced a lot anyway have you checked exactly how much it's worth to you per year?) and the cost of registering with the PTRB. But you'd be getting 200 p/m more in rent. This means you could pay the mortgage, LPT, Insurance etc fully from the rent and the house would have no net cost to you. Then you bide your time until the house is out of negative equity and ask your ex if he's willing to sell.

You mention forcing a sale of the house by the way. From my research into this, you're back into 15-20k court case territory in order to force a sale. So you'd have to get your ex to agree to a sale. By the sounds of it he might want to wait until the house is not only out of negative equity, but actually worth something before selling so that he gets something out of it. It's very hard to predict what will happen with property prices but it could be years before the house is worth something, if ever (there could be another crash). So you have a big problem on the horizon regardless of what avenue you take to cover the monthly costs in the meantime.

From what I know - correct me if I'm wrong anyone - neither you nor your ex can force a sale unless you go down expensive court route. The only way to force a sale is actually to go into arrears to the point where the bank repossesses and forces a sale. Do you have any idea/estimation how long it might be until the house is out of negative equity?

What about all the income tax due on the rent?
No mention of that anywhere.

griswold said:

What about all the income tax due on the rent?
No mention of that anywhere.

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Generally once you offset that against the mortgage interest there's no net liability - at least in my case anyway house bought in 2005. Houses in the first 10 years of mortgage have very high interest payments

Lucuma said:

Generally once you offset that against the mortgage interest there's no net liability - at least in my case anyway house bought in 2005. Houses in the first 10 years of mortgage have very high interest payments

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I doubt that the rent is generally lower than 75% of the mortgage interest payments almost 10 years into a mortgage.