First let's look at it from a pure financial perspective
OK, so the property is worth €220k and the mortgage is €350k.
The interest on the mortgage at 4.25% would be €15,000 a year
You are getting rent of €10,200 but you have to deduct costs from that - say €2,200
So it's costing you €7,000 a year before paying any capital.
If you sell the property, you will be left with a mortgage shortfall of €130k.
Even if they allow you to pay interest at the mortgage rate of 4.25%, this will cost you €5,500 a year.
So there isn't much financial sense in agreeing to the sale of the property.
So, unless KBC does a deal with you on the shortfall as part of an agreement to sell, you should not sell or surrender the property.
House prices may fall, and you will owe them a bigger shortfall when they eventually get a repossession order after a few years in court. It doesn't matter that much if the mortgage shortfall rises. You can't pay it anyway.
However, house prices may also rise, and it's possible that if you string it out long enough, you could reduce the mortgage shortfall to a manageable level.
So I would suggest sending the following letter to KBC
(You are half addressing the repossession court when writing this letter. You will be producing it as evidence of engagement and your efforts to solve the problem.)
My life fell apart 3 years ago when my wife left and I lost my job. I was forced to emigrate to get a job.
I am getting it back together now and would like to sort out this problem.
I want to keep my family home as it's my family home and my plan would be to move back some day.
I contacted you in x/201y and offered to pay you the rent, but your Mr y refused it. So I have tried to stay on top, but have not received your cooperation.
The amount of the mortgage is exacerbated by the outrageous interest rates you are charging. You are charging over twice the average level in the rest of the Eurozone. You are charging almost twice what your parent bank would be charging me in Belgium.
I would propose that you would give me a split mortgage and warehouse the negative equity of €130k.
Although I am paying rent here I will do my very best to subsidize the mortgage payments from my income.
If this is not acceptable to you, then I will reluctantly agree to sell the home, subject to your agreeing a write off of the negative equity, or, alternatively agreeing a 5 year plan to pay off as much as possible.
As a gesture of goodwill, I will pay over the rent in full to you for the next three months while you are considering this proposal.
If we have been unable to agree a deal by the end of March, then I will need to use the rental income to build up a fund to pay for the legal costs of defending against your repossession.
I look forward to hearing from you.
[You should then put the rent into a separate account and not touch it. This would be used as part of any settlement you might come to.
You will probably be rejected, but such a letter will show the Registrar in the court that you have done your best to engage with them and they have not responded.
They might not even respond. If they don't, send a reminder every month. Keep up notes of every conversation. The date, time and the name of the person to whom you spoke.
You should get around another 2 years before they get an order for the repossession. If your finances improve by then or if house prices increase, you could well get to keep it.
Brendan