Case study AIB looking for Voluntary Surrender of PPR and "will do a deal" on shortfall

I currently have arrears of my mortgage of €38k. Ive been in arrears since 2011. The value of the home is approx 140k and the motgage total inc arrears is 360k. I have been in arrangements under the MARP process for the last 2 years. Ive been paying €675pm. I formally applied for a split mortgage which was turn down on the basis that the mortgage is now unsustainable. I spoke with the bank friday and they advised me that they want me to volunatarily sell my family home and "do a deal" on the shortfall. I do not want to do this and my preference would be to stay. I currently work in a pilar bank as an entry level bank clerk (different bank that mortgage held) and im ensure how insolvency or bankruptcy will effect my employment. Im very worried about the situation. Is my employment at risk if i attempt to enter a PIA?


Personal and income details
Income self: 35,000
Income partner/spouse: 8000
Income history:
number of children 2
Amount of Mortgage Interest Supplement received 0
Home loan
Lender: AIB
Amount outstanding: 360,000
Value of home: 140,000
Interest rate: variable
Monthly repayment : 675
Amount in arrears : 38000

Summary of discussions and agreements with the banks. Currently in MARP process which now seems to have ended, bank want me to sell the house and do a deal on the shortfall. They have given no details on what the deal may be


Other loans and creditors -
Overdraft
Credit Card 3500
Loans: 38000, currently paying 500pm, 1000 due


Other savings and investments 0


How important is retaining the family home to you?
My preference would be to keep the home




What is your preferred realistic outcome?
To obtain a split mortgage

Loans: 38000, currently paying 500pm,

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Why are you making payments on an unsecured loan? If you want to keep your house, you should be prioritising your mortgage. Tough on your unsecured lenders.

How did you get the mortgage in the first place? What was your income?

Here are the possible options as I see them...


PIA option
This isn't really an option, as AIB would probably veto it.

Reduce mortgage to €140k and write off shortfall after 6 years.

Write off balance on unsecured loans after 6 years.

It's unlikely that you will keep the arrangement, so why put yourself through 6 years of hassle.

Split mortgage option

The best split mortgage they could offer you would be along the following lines

The repayments on the active part would be around €700 a month over 30 years. But where would that leave you? You would still owe the deferred part.

When your income increases over the coming years, they would move part of the split mortgage into the active mortgage and your repayments would increase. You would spend the next 30 years paying off your negative equity.

Surrender house now
If AIB agrees to write off the shortfall, then you have a fantastic deal. Sure you lose your home, but you also lose a €220k mortgage shortfall.

You will have to rent somewhere and it will be disruptive, but when your earnings increase, you will be in a position to accumulate savings again.

The best strategy
Propose the following to AIB

1) You will sell the home in an orderly manner to maximise the sales proceeds. You will stay in the house until that is achieved.
2) While you are waiting for the sale to go through, you will prioritise the mortgage repayments.
3) After the sale, your mortgage shortfall will be an unsecured debt.
4) You will propose a Debt Settlement Arrangement whereby your unsecured debts are written off after one year. - AIB will not veto this, and therfore your other unsecured debts will get written off as well.

I'm unsure how insolvency or bankruptcy will affect my employment. Im very worried about the situation. Is my employment at risk if I attempt to enter a PIA?

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It is unlikely that insolvency or bankruptcy would affect your employment as you are at a junior level.

What AIB is proposing is not an insolvency. They are proposing to write off some of your mortgage shortfall. You will not be entering a PIA or bankruptcy.

But I am suggesting that you should enter a Debt Settlement Arrangement as you can use it to write off your unsecured debts and have a fresh debt-free start after one year.

In fact, if AIB agrees to what I am proposing, the fact that you would be debt-free would probably help your career. If you retain a home in huge negative equity, it could be a bar to promotion, although fitness and probity only applies to very senior employees.

Brendan Burgess said:

It is unlikely that insolvency or bankruptcy would affect your employment as you are at a junior level.

What AIB is proposing is not an insolvency. They are proposing to write off some of your mortgage shortfall. You will not be entering a PIA or bankruptcy.

But I am suggesting that you should enter a Debt Settlement Arrangement as you can use it to write off your unsecured debts and have a fresh debt-free start after one year.

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Do Debt Settlement Arrangements not take 5 or 6 years rather than 1?

ClaireM said:

Do Debt Settlement Arrangements not take 5 or 6 years rather than 1?

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Hi Claire

The maximum period allowed is 5 years.

However, there is nothing to stop the PIP from proposing a period of 1 year or 1 month.

Brendan

Brendan, the above is very helpful. As above regarding the unsecured debt I have to pay this as one of the main personal loans is a staff loan which I cannot default on. I will write to AIB today outlining your suggestions. Would it not be likely that AIB would expect a much longer term that 1 year to discharge the outstanding balance?

I spoke with the bank friday and they advised me that they want me to volunatarily sell my family home and "do a deal" on the shortfall.

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I will write to AIB today outlining your suggestions.

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Why write? Call the person you spoke to on Friday and arrange to meet with them. Find out what they are proposing. You should be negotiating in person rather than by letter.

I have to pay this as one of the main personal loans is a staff loan which I cannot default on.

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It's an interesting issue. It's still an unsecured loan and you should be prioritising your mortgage.

Brendan

I rang to arrange a meeting. He requested not to meet me until tje house was up for sale and advised me the bank would have a clearer picture of how things will proceed once they have a guide price. Seems a stupid point to me given its quite easy for them to identify how much the house is worth. 3 houses on the same road are for sale and I advised them of the estimated value

Brendan, as above would I not require to speak to a PIP (once established) before engaging further with the bank?
Also, why are you of the opinion that the bank would not veto a DSA? The act identifies DSA's to last 5 years with a possible 1 year add on. Why would a bank discharge a debtor after 1 year if they could sqeeze more funds out of them over a longer period to recoup more of the loss?

Hi Introuble

This is a very annoying response from the bank.

You should insist on meeting them. You have not yet agreed to a voluntary sale. The meeting is about whether or not you will agree to a voluntary sale.

It looks as if you will have to write to them.

Dear Bank

I refer to my telephone conversation on Friday x where Mr y suggested a voluntary sale of my property. I would strongly prefer to keep my house and would hope to apply for a Personal Insolvency Arrangement in the coming months.

When I phone Mr y today, he said that he did not want to meet until the house was up for sale. This seems to me to be the wrong way of doing things. I would like to meet with you as soon as possible to explore the different options and to hear your proposals about a voluntary sale and the write-off of any shortfall.

There are three properties for sale on the road, so I would expect to realise around €z if I agree to a sale.

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Brendan

Brendan Burgess said:

Hi Introuble

This is a very annoying response from the bank.

You should insist on meeting them. You have not yet agreed to a voluntary sale. The meeting is about whether or not you will agree to a voluntary sale.

It looks as if you will have to write to them.


Brendan

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Many thanks for your response brendan

Brendan, my understanding of a DSA and PIA is that your name goes on a public insolvency register should you avial of one of the options. Is this true? and are other details put on the register such as your address and profession?

Brendan, on the above why do you think the bank would veto a PIA but not a DSA, do you believe banks will be more inclined to turn down pip's proposals on PIA's over DSA's. As you can only apply one and if rejected it triggers potential bankruptcy. For my example you state above that id be better to sell my ppr and get a dsa on the shortfall, why i not be better to seek a pia and try keep the home? hope i make sense, tks

From your reports, they consider your mortgage to be unsustainable and so they want you to sell the house.

If a PIA doesn't make your mortgage sustainable. they will veto it.

They are unlikely to veto a reasonable DSA.

Many thanks again brendan, I hope to meet with a PIP over the coming weeks, i will update the thread on how things proceed.

Don't want to appear rude by contradicting anyone else here but I have to say that I would take a completely different route.

Do not sell your house. Keep it. No one will put you out of the house as long as you pay the mortgage based on 140K. The negative equity can be parked.
Your first step should be to request your bank to give you a split mortgage based on a140/220 split. You can point out to the bank that you can afford a mortgage
based on 140K. You can also advise that you will apply for a DSA under the new PIA arrangements which will make it sustainable in the long run.

If the bank is unwilling to accept your proposal. You should opt instead for a PIA under the new insolvency arrangements.
You should remember one very important cornerstone of the PIA - "A PIA should not require a debtor to leave their home........"
With a PIA you should be able to achieve a workable solution for both your secured and unsecured debt.

Best of luck

Dr Debt, in the event of the PIA being rejected does this automatically trigger bankrupcy proceedings? or would I still be in a position to apply for dsa, I know you can only apply once for either but if a PIA is rejected under the new legislation can a PIP then try to negotiate a DSA? in this case i would try to keep the house but if the pia failed i could sell the house and attempt to get a dsa on the shortfall, my preference is to stay in the home but im conscious of this "one chance for a deal" clause in the act

A failed PIA does not automatically trigger bankruptcy proceedings.

In your case a PIA is unlikely to be vetoed by the bank. The family home cannot be targetted under the Act, unless there are extreme circumstances. Any proposal agreed betwen your PIP and your Creditors cannot include a provission for you to lose your home. Thats your trump card here so keep playing that one.......

If you go the PIA route, there will be detailed discussions between your PIP and all the creditors to reach an achievable solution. In practice the PIA will be agreed with all the parties before it is voted on at the Creditors meeting.

In my view you have a much better chance of achieving the optimal solution for you(including keeping your home) by engaging with the PIA process. Going it alone now seems to imply that you will lose your home which doesn't make sense to me.

By the way, Im a bit confused by earlier posts. Did AIB agree to write off the negative equity shortfall if you sell the house. I understand that they said they would do a deal !!
What kind of deal. I very much doubt that they ever agreed to write off the short fall ??
My guess is that they might agree to park the short fall or partly park the shortfall which really isnt much good to you especially if you want to buy another house later. Be very careful with this.

Dr Debt, many thanks for your point of view, on meeting with a PIP I will discuss this with them and hopefully a satisfactory deal can be arranged which will allow me to stay in the property