Key Post The Family Home in Bankruptcy

[Brendan Burgess]

Very interesting comments from Chris Lehane

 

[Brendan Burgess]

In response to questioning from Ciaran Lynch, the OA says he has owned homes for up to 30 years. In the UK, the OR must dispose of it within 3 years.

 

[Brendan Burgess]

Ciaran Lynch: Why do you insist on €5,000 to buy a house in negative equity.

OA: €5,000 is fair to both sides

 

[Brendan Burgess]

In response to Michael McGrath

The reality is that the spouse becomes fully liable for a mortgage, where her husband has been adjudicated bankrupt.

 

[Brendan Burgess]

Kieran O'Donnell

You have a good chance of losing the family home in bankruptcy

Within PIAs, only 20% of secured debt has been written off.

 

[Bronte]

In response to questioning from Ciaran Lynch, the OA says he has owned homes for up to 30 years. In the UK, the OR must dispose of it within 3 years.

Why would he hold onto a home for 30 years, that's a lifetime.

 

[Bronte]

OA: €5,000 is fair to both sides

Who are the two sides he is referring to, we have say the bankrupt husband, the wife, the OA, the bank?

 

[Brendan Burgess]

Hi Bronte

I am confused by your figures. Here is my summary for those who had homes at one stage.

|2011-2013|2014
Vol surrendered|10|14
Possessed by order|11|0
Possession order granted, not enforced|12|4
OA sold|3|0
Total lost|36|18
Mortgages being paid|25|16
Mortgagee not being paid|10|16
Total kept|35|32

I think that the 2014 figures are too early to make any conclusion about. The lenders or OA will not have dealt with them yet.

I don't know how to treat the "no mortgage" category. I presume that this means that they neither paid rent nor a mortgage. In other words, their spouse owned the home.
It does seem odd that the OA has only sought orders for sale in three cases. This presumably means that only three were in positive equity. And, of course, he probably sold these three to the spouse of the bankrupt.

Brendan

 

[Bronte]

And, of course, he probably sold these three to the spouse of the bankrupt.

If he did then he should have made it clear. Sorry for my confusing figures. I'll go with your figures.

2014

18 lost
32 kept - we cannot make a decision on these as the figures are not finalised

Pre 2013

36 lost
35 kept so more than 50% of people lost their homes in bankrupty. So for pre 2013 it's clear that the majority actually lost their homes.

 

[Brendan Burgess]

The overall conclusion is that there is at least a 50% chance that you will lose your family home in bankruptcy.

In general, try to do an informal deal, rather than to rely on bankruptcy.

If you are single, your home will vest in full in the OA. If you continue to make your mortgage repayments, the lender won't take any action. And the OA won't take any action. But you won't own the home after bankruptcy either. You will have to buy it from the OA.

If you are married and in positive equity, your spouse will be able to buy your share of the positive equity. But you may be better off trying to do a deal with your creditors to avoid bankruptcy. This may involve selling your home (possibly to your spouse)

If you are married and in negative equity, your spouse will be fully liable for the mortgage, so you are not getting any benefit by going bankrupt - unless you want to force your debt on an ex-spouse. Your spouse may be allowed to buy your interest for €5,000, but the OA is in no hurry to sell it. If your spouse pays capital and interest repayments, they may be just building up value for the OA.

 

[Brendan Burgess]

Why would he hold onto a home for 30 years, that's a lifetime.

He seemed remarkably casual about this.

If you go bankrupt, your husband and the OA will own the house jointly. The OA won't pay anything. If your husband makes the full mortgage repayments, the OA's interest will continue growing in value.

It seems crazy to me.

 

[Brendan Burgess]

Who are the two sides he is referring to, we have say the bankrupt husband, the wife, the OA, the bank?

Sorry, he was trying to balance the interests of the bankrupt and the creditors.

 

[Bronte]

If you go bankrupt, your husband and the OA will own the house jointly. The OA won't pay anything. If your husband makes the full mortgage repayments, the OA's interest will continue growing in value.

.

Legally speaking this is not at all clear. Leave aside bankruptcy for a moment, my understanding was that even where a home was jointly owned, and they don't even have to be married, if one party makes all the payments on the mortgage, than they are entitled to the equity they have built up, and the other partner, if they have contributed zero, are entitled to nothing. There is case law on this, it comes up occasionally. But Ireland being Ireland, you never know until your own actual court case what way the wind blows.

I think there could well be a very solid legal argument that where a spouse makes all payments they are entitled to a higher beneficial share.

 

[Matthew Moore]

If you are married and in negative equity, your spouse will be fully liable for the mortgage

Hi Brendan,

I presume this is the case only where the spouse is also listed on the mortgage, am I correct?

 

[Brendan Burgess]

What does it mean for the Bank to "rely on their security" if a house is in deep negative equity.

From Chris Lehane's presentation in the first post

This is my understanding:

On bankruptcy, the family home and mortgage vests in the Official Assignee.
The borrower no longer owes the money and can, if he wishes, walk away from the home and mortgage.

If neither the lender nor the OA sells the house, the bankrupt can stay in it. But they no longer owe the mortgage?

 

[Matthew Moore]

What does it mean for the Bank to "rely on their security" if a house is in deep negative equity.


If neither the lender nor the OA sells the house, the bankrupt can stay in it. But they no longer owe the mortgage?

Don't understand this myself.
In my case, I bought the house as a single borrower in 2007 for 315k, now worth 120-180k depending who you ask. Since then, I am now married with a baby, it has become a family home but my wife is not on the mortgage. She has however contributed to payments over the years.
I'm now in the early stages of bankruptcy awaiting a date for adjudication. I thought the whole idea of being adjudicated bankrupt is that you no longer owe nybody any money.
If bank relies on security but we continue paying what we can afford off the mortgage, what happens to the mortgage and NE??

 

[Brendan Burgess]

Hi pat

This is an explanation I got elsewhere

"The bank can opt out of the bankruptcy process: i.e. it can still hold the mortgage. However, the borrower would have no more liability to the bank UNLESS he agreed to take on the liability post-bankruptcy.

EG, Market value of house €100,000. Mortgage €300,000.

The borrower might wish to keep the house , and negotiates with the bank that he will keep the house with a reduced mortgage of €200,000. i.e. the bank writes off €100,000."

So, in your case, you will have no more liability.

The bank can rely on their security and repossess the house, or if you and your wife continue to make payments, then they will probably not take any action.

When you emerge from bankruptcy after three years, you are free to walk away. Or you could ask the lender for a mortgage to buy the house from the Official Assignee.

Brendan

 

[Matthew Moore]

Hi Brendan,

Thanks for the information. It will be interesting to see how it plays out in practice. Going through the bankruptcy there is a real temptation to walk away from the house but on the other hand there are many reasons we would like to stay.

You say I could ask the lender for a mortgage to buy from the OA; if they are relying on their security due to so much NE does that not mean that he has no interest in the asset to sell?

 

[Brendan Burgess]

You say I could ask the lender for a mortgage to buy from the OA; if they are relying on their security due to so much NE does that not mean that he has no interest in the asset to sell?

You are right. You would not be buying it from the OA. I don't really understand the mechanics of it. If they rely on their security, and you have no mortgage, what are you paying? Rent or a mortgage payment on a mortgage you don't have.

Brendan

 

[Matthew Moore]

You are right. You would not be buying it from the OA. I don't really understand the mechanics of it. If they rely on their security, and you have no mortgage, what are you paying? Rent or a mortgage payment on a mortgage you don't have.

Brendan

It is confusing. I suppose it's early days and relatively few cases have went through the system.

So I'm adjudicated bankrupt, me; now no debts, bank; have chosen to rely on their security and take a hit on the NE. However, my family and I are still living in the banks "security" and as it is/(was?) a family home, certain statutory protections are in place which mean a court order is required if my wife refuses permission for the house to be sold.

What happens now if I can afford and I'm paying the full mortgage repayments and OA is happy that they are reasonable?

1. Bank seek possession through courts?
2. Bank capitalises arrears and give me a new mortgage contract including arrears and remaining amount?
3. Bank write off NE and give me a mortgage contract relative to what they would achieve by selling their security?
   
4. The mortgage debt and contract some how stay outside the whole process so I leave bankruptcy with a 300k+ debt on a 120k house and bank are happy to get full repayments plus an amount to reduce arrears?