Bank have no interest in lengthening the term of loan

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PatrickJ

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Not my case this time but that of a family member who was in significant mortgage arrears due to job loss but found a job and continued paying down their debt. The bank seemed happy with their progress and recapitalized their arrears. As a family we sat down and discussed the pitfalls of recapitalizing and thought they should sell the property and make an agreement with the bank to pay off the residual debt. The mortgage monthly payment was impossibly high and surely was unsustainable long term. They didn't listen to us and went along with their bank. Two years later and as predicted they are struggling and have now went into arrears (1 month). Their bank have written to them offering options. One of these options was to lengthen the term of their mortgage. When they applied for this option they were turned down. Reason given (they did not prioritize their mortgage over unsecured debt). The only debt they have other than their mortgage is Revenue debt which is paid back on the dot monthly.

The two questions I have are as follows:

1. How likely are their bank to file for repossession (only 1 month in arrears but this mortgage was already rescheduled two years earlier).

2. Is Revenue debt classified as unsecured debt?
 
As you are probably aware from reading posts on re-possession on this forum it is highly unlikely that the bank will take any proceedings until arrears position has considerably worsened. Revenue debt is classified as unsecured debt. Having said that most banks will allow some flexibility on the priority of funds owed to Revenue.
As they currently have a problem in meeting their full loan repayments they will need to apply first for an ARA (Alternative repayment arrangement) under MARP. Standard process is to supply a completed SFS along with bank statements etc in support of their proposal. Accompanying letter should emphasise the priority given to Revenue payments and the reasons for same. Term of arrangement with Revenue and written verification of this should also be submitted.
 
Hi Patrick

I suggest you put up the Case Study information as it's very difficult to answer a question like this without the information.

Unless they are prepared to press the bankruptcy button, in most cases the borrower is better off staying in the home and struggling with the mortgage. The rent and the payments for the shortfall would usually be more expensive.
 
Personal and income details
Net 43,000 (after tax)
Rents a room: 4,800.00 yearly
Number of children: None
Amount of Mortgage Interest Supplement received: None

Personal Debt
Revenue: 12,000.00 approx (Monthly repayment 500.00)

Home loan
Lender: Foreign lender on the verge of quitting ROI
Amount outstanding: 400,000
Value of home: 260,000
Interest rate: SVR 4.5% approx.
Monthly repayment: 2,613.08 (TRS is not being applied to the repayment as monthly repayment is never paid on time i.e. on average one month late due to trying to gather the money together by using the following months salary. The bank claims because of the repayment arriving late their computer system is not able to apply the TRS????
Amount in arrears: 2,613.08 and will always be one month in arrears.

Summary of discussions and agreements with the bank: In constant contact. Bank not pleased that revenue are being paid yet they have been made aware that the revenue could seek an installment order on salary.

Approximately 19 years left on mortgage (37 year old mortgage holder) who has asked the bank to lengthen the mortgage term to 30 years. This has been turned down. What are your thoughts on this please?

Summary
Take Home: 3,584
Rent A Room: - 400 renting a room
Revenue: - 500
Mortgage: - 2,613
Electric: -60
Gas: -60
Food: - 240
Home Ins: -22
Life Ins: -13

Shortfall €325.00

Note: A PIA was vetoed.
 
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PatrickJ said:
Amount outstanding: 400,000
Value of home: 260,000
Click to expand...

PatrickJ said:
Take Home: 3,584
Rent A Room: - 400 renting a room
Revenue: - 500
Mortgage: - 2,613
Click to expand...

Hi Patrick

€400,000 @4.5% = €18,000 a year in interest
Less €5,000 Rent a room
= €15,000 net cost of your accommodation

Repayments €31k a year.
less €5k rent a room
=€26k cash cost of your accommodation.

Option 1 Continue struggling as you are
Out of your net income of €4,000, €3,100 is already accounted for . That is not a sustainable situation.

The benefit is that you keep your home and if house prices rise by 50% you will be back in positive equity.

But I don't think it's sustainable. My guess is that after a few years of sacrifice and struggle and paying down the negative equity, they will seek to repossess your home anyway.

So I would not advise this.

Option 2 Bankruptcy
You have done your best, they have vetoed your PIA. (Was it the bank or Reveneue who vetoed the PIA?)

After 1 year, you will be solvent again. You won't be able to buy a house, but nor will you have this huge debt to repay.

The lender will probably institute repossession proceedings but it will take them a year or maybe two to get you out of the house.

Option 3 Reduce your repayments to a manageable level unilaterally
I think that you will eventually lose your home. So I don't see any reason why you should be paying down the negative equity at this stage.

So pay the interest in full but no more. Use the cash saved to live a little or to pay off the Revenue debt a bit quicker.

When the Revenue debt is paid off, you could enter into negotiations with the lender to do a voluntary surrender in exchange for writing off the shortfall. If they refuse, drag it out as long as possible. It will take them so long to get repossession, that it's possible that the shortfall will have been eliminated by rising house prices in the meantime.


So which would I go for?
Pay down the Revenue debt as you will never be able to negotiate that.
Pay at least the interest every month so that you can stall the legal proceedings and repossession as long as possible.
You could end up solvent through the increase in the value of the house.

But the current situation of asking them nicely is not sustainable.
 
PatrickJ said:
Monthly repayment: 2,613.08 (TRS is not being applied to the repayment as monthly repayment is never paid on time i.e. on average one month late due to trying to gather the money together by using the following months salary. The bank claims because of the repayment arriving late their computer system is not able to apply the TRS????
Click to expand...

You must get this in writing from them and send it to the Revenue.

This is completely unacceptable. They are overcharging you and you should work out the TRS yourself and deduct that from the payments.

The Registrar in the Circuit Court will not be impressed that they are unable to claim back money which is yours.

Brendan
 
Thank you very much Brendan.

Vetoed both by revenue and the mortgage provider. The PIP did warn that revenue always insist on receiving first priority so I presume it was inevitable.

You make a good point re them seeking to repossess when the negative equity portion is cleared.

Regarding TRS and as a matter of interest would you believe the they have it in writing (email) from the bank that the TRS could not be applied for reasons stated above. I seen this correspondence with my own eyes. They have been paying at least €200.00 over the odds each month.

Do you think Brendan they should appeal the refusal to lengthen the mortgage term or is it simply a dead duck so to speak?
 
I don't think that they should want the term lengthened. They are in an insolvent situation. They should pay the interest only and then defend against the repossession as hard as possible.

How much back TRS is owed?

Brendan
 
In the region of 6 months Brendan. However, this TRS issue is an on/off saga for a long time and when the error was pointed out to the bank they would simply request a smaller mortgage repayment be paid to make up for the tax not passed on. As soon as the issue be rectified it would immediately return to square one again.
 
PatrickJ said:
they would simply request a smaller mortgage repayment be paid to make up for the tax not passed on. As soon as the issue be rectified it would immediately return to square one again.
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That does not solve the problem if they kept charging the 4.5% interest.

If your friend was due €200 TRS and the bank could not claim it, then the bank should have reduced the interest charged and the repayment by €200.
 
Thanks Brendan. There has been some interesting progress (for want of a better word). The bank have insisted that the TRS repayment owed is not in the region of approx 200.00 per month but indeed 20.00 per month. From the figures above would you have any idea please what amount of TRS should be applied. Does TRS depreciate in value overtime?

Thank you once again for your advise.
 
Brendan Burgess said:
Option 3 Reduce your repayments to a manageable level unilaterally
I think that you will eventually lose your home. So I don't see any reason why you should be paying down the negative equity at this stage.

So pay the interest in full but no more. Use the cash saved to live a little or to pay off the Revenue debt a bit quicker.

When the Revenue debt is paid off, you could enter into negotiations with the lender to do a voluntary surrender in exchange for writing off the shortfall. If they refuse, drag it out as long as possible. It will take them so long to get repossession, that it's possible that the shortfall will have been eliminated by rising house prices in the meantime.
Click to expand...
This is the best advice given the circumstances. based on the financial info provided your friend is likely to struggle financially for many years while trying to hold on to a property and associated debt that is not sustainable. The bank have refused the option of lengthening the mortgage term and again I don't think this option will be a realistic one based on existing figures.
TRS issue needs to be addressed as a complaint to the Bank if they are in error. Formal complaints must be properly responded to.
 
Thank you 44brendan. Yes, I agree option 3 is the only way out of this sorry mess. The TRS situation does warrant a complaint/further investigation. Does a TRS payment of 20.00 per month sound incorrect?
 
Sorry, I haven't kept up to date with TRS. If it's only €20 a month I wouldn't be that worried about it.

Except that it's the type of thing which you could throw at them in the court, if you keep asking them to fix it, and they refuse.

Brendan
 
Patrick, that payment sounds very low. My mortgage payment per month is €302.00 and I get €27.00 back in TRS.

Perhaps there are other circumstances, which make the payment that low, that we are not aware of. But on first viewing, definitely looks very, very low.
 
Thanks Paddy. Definitely something not adding up alright. However, having had a look at their mortgage statement they have been paying their mortgage in full each month save for one month which is in arrears. Either the bank are playing foolish or like myself simply don't understand the TRS system. I think as mentioned above the complaint process needs to be exhausted. Do you know if the TRS payment gets lower and lower overtime?
 
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