Case study Fight to stay in home or agree to a voluntary sale

Discussion in 'Mortgage arrears & negative equity case studies' started by Kerrigan, Jan 30, 2017.

  1. Kerrigan

    Kerrigan Frequent Poster

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    Would appreciate any input please. My wife's sister is having difficulty paying her mortgage. She is a single parent and solely purchased the property in 2004. Her mortgage went into free fall in 2011 when the recession hit.

    Roll on 2014 and she is back in full time employment and her bank agrees to capitalize arrears of 10k. At this stage the repayments have significantly increased and in 2015 she finds herself in difficulty again (realistically the agreement with the bank was unsustainable and inevitably was destined to fail).

    The bank agree again to recapitalize and accept full interest plus 70% of capital each month equating to a monthly repayment of approximately €1,880.00.

    As of today's date she is €3,000.00 in arrears.

    The bank have contacted her and asked her to make them a proposal and if not they will call the loan in.

    Some figures as follows:

    Remaining mortgage owed: €376,000.00
    Value of property: €310,000.00
    Payment being made: €1,880.00 PM
    Bank would like: €2,390.00 PM
    Interest rate: 4.5% SVR

    Monthly income after tax: €3,500.00 (made up of salary from job, income from BTL and income from renting a room).
    Loan BTL (no equity): €580.00 PM

    She contacted a PIP who told her to try and make a deal with her lender and if no deal could be made she could enter into insolvency.

    She cannot go on the housing waiting list until the bank formally declares her mortgage unsustainable.

    The PIP has advised her that should they take on her case they would be requesting the bank lower the interest rate for a specific period of time.

    Do you think she should fight to see another day at this property or agree to a voluntary sale?
     
  2. Brendan Burgess

    Brendan Burgess Founder

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    Which lender is she with?

    It's probably Bank of Ireland if the mortgage rate is 4.5%. If it is, she can fix for two years at 3.45% and should do so immediately.

    If it's permanent tsb, she can switch to a Managed Variable Rate, and pay 4.3%, I think. So she should do this.

    Brendan
     
  3. Brendan Burgess

    Brendan Burgess Founder

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    Can you give us the Buy to Let figures.

    You say she has income from it but no equity.

    Does that mean that she has a cheap tracker?

    If she has income, she also has a tax liability.

    If she is in deep negative equity and has a non-tracker mortgage, then maybe insolvency is a solution.

    If she has a tracker, then she should not be considering insolvency.

    Brendan
     
  4. Brendan Burgess

    Brendan Burgess Founder

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    €376,000 @ 4.5% = €1,500 per month, less [€500] per month rent a room, means that her accommodation is costing her €1,000 per month.

    She will not be able to rent a property worth €310k for €1,000 a month.

    They are the rough principles involved.

    When you come back with the further information on the mortgages, I can suggest how best to approach this.

    Brendan
     
  5. Kerrigan

    Kerrigan Frequent Poster

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    Hi Brendan,

    The lender for her primary residence is ACC. I understand that their fixed rate is approximately 5.5%.

    The BTL is with one of the big 3 on a cheap tracker at 1.1%; costing approx. €640.00 per month with income of €900.00. 110k outstanding on mortgage with a value of 70k.
     
  6. Bronte

    Bronte Frequent Poster

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    How many years left on the mortgages. What is her age. How much could she rent somewhere decent for?
     
  7. Brendan Burgess

    Brendan Burgess Founder

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    I don't know ACC's practice as they have issued so few mortgages. When does the fixed rate end?

    In any event, she should look for a reduction in the rate. This would bridge the gap between what the repayments should be and what she can afford. This must be done in writing. Assuming they reject her application, she must appeal and again in writing.

    She needs to have a file to show that she has done everything possible and to show how ACC responded to her. This could be useful for a PIP or a judge in the event that ACC seeks to repossess her home.
     
  8. Brendan Burgess

    Brendan Burgess Founder

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    OK, so this is profitable and cash-flow positive (at least before tax.) So it's a good investment despite the negative equity.

    Brendan
     
  9. Brendan Burgess

    Brendan Burgess Founder

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    I don't think that a PIA is a good idea in this case.
    She could ask the courts to force a write down of €66k on ACC. However, it sounds as if she can't afford the repayments on €310k either. So the conclusion might be that she should sell her home.

    What about a voluntary sale?
    I don't think that this makes any sense for her. She would lose her home and her rent would be higher.

    Even if ACC agreed to write off the shortfall, I don't think she should go for it. There is fair chance that the shortfall will disappear anyway over the next few years due to capital repayments and house price inflation. Of course, it could get worse if house prices fall. But that wouldn't make much difference to her. She would still be insolvent, only a bit more so.


     
  10. Brendan Burgess

    Brendan Burgess Founder

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    How about exploring a trade down mortgage with ACC?

    She is able to pay €1,900 a month.
    Could she trade down to a house worth €200k?
    She would presumably lose her income from rent a room if she did, so it might not work.

    If that is possible, then she should put a proposal to ACC involving the following:
    • Reduction in the mortgage rate to 3.5%
    • Trade down to a smaller house
    • Write off of the negative equity - they won't agree but put it to them anyway.
    If she gets the rate reduction and trade down, then she could well be sustainable.
     
  11. Brendan Burgess

    Brendan Burgess Founder

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    If these options don't work and if ACC doesn't help her...

    I think she should just play hard ball.

    Keep requesting a deal. Keep paying what she can. Keep up a file of correspondence.

    They may just reluctantly accept it and keep hassling her. But she stays firm.

    They may initiate repossession proceedings. These are not as bad as they sound.
    She attends court and tells her story.
    She will get adjournments for some time.
    It's not the courts' practice to grant orders in these types of cases. That may change, but by the time it does, she might well be out of negative equity or her finances may have changed.

    Brendan
     
  12. TLO

    TLO Frequent Poster

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    Last edited: Jan 31, 2017
    What outcome would OP's wife's sister prefer? For example, would she really like to hang on to the house? If so, then a "no veto" PIA should be considered. It's a lot of work, but the loan balance could be forced down to €310K, the term extended, and the interest rate reduced so that the monthly payment is made to fit her monthly salary. Caveat, the mortgage must have been in arrears on 1 January 2015 in order to be eligible, and that may not be the case here.

    Another possibility, why not move in to the rental property? The mortgage is about a third of what ACC are looking for, and the interest rate is really attractive. On paper it seems like a much better option than the hassle of getting on the housing list.

    Also, it's worth remembering that ACC is being wound down. They may not be keen on providing alternative facilities. But they might entertain solutions that let them close their files.
     
    Last edited: Jan 31, 2017