Handing back the keys

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Brenbo

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I am looking for some financial advice on the consequences of the following:

I recently constructed a house with the intention of selling it within a relatively short period of time. However credit crunch, recession and all that. The house has not sold to date.

Obviously renting it is an opinion and funding the shortfall between rent and mortgage myself. However my primary resident is mortgaged 92% and funding the shortfall over a long period isn’t really feasible.

Sale of the property (if possible) would just about cover mortgage.

Therefore my question is what are the consequences of simply saying to the bank I can’t sell the house and can’t afford the repayments and rather the getting into arrears and going through repossession. Simply hand them the keys?


What are the benefits to hand over the key and not being in arrears?
 
Brenbo said:
Therefore my question is what are the consequences of simply saying to the bank I can’t sell the house and can’t afford the repayments and rather the getting into arrears and going through repossession. Simply hand them the keys?

What are the benefits to hand over the key and not being in arrears?
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If you can't sell the house, then presumably the bank will have no more luck. You will remain responsible for repayments until the property is sold AND the full balance owed is cleared and so you WILL go into arrears. Your credit rating will be destroyed, leaving it very difficult for you to even get a credit card, personal loan or car finance in the future, never mind another mortgage. The bank will attempt to sell the property at any price they can get so the eventual price may be well below the mortgage balance. If so, they will continue to pursue you (through the courts if they feel it worth while) for the balance that you owe them, even after the property is sold.
 
Sell the property for what you can and discharge the mortgage. As you have another property this could potentially be at risk. Alternatively could you sell your current property and move into the other one.

The bank will not want your house and arrears will keep accruing until the mortgage is discharged.
 
Do you have an interest only mortgage on the investment property if so I would have thought with interest rates reducing that the rent should cover the mortgage.
Regarding your private dwelling house can you get an interest only option on this or extend the term. Handing back the key wont do you any favours as this will affect your credit rating. You need to investigate all your options first and please take into account that interest rates are reducing which will reduce your repayments in the New Year.
Best of luck
Spin
Mortgage Broker
 
How long does ones credit rating remain 'bad' if one defaults on a debt.
Also how is this classed, is there different level?
 
The bank will go after your primary residence if you hand back the keys to the investment property, they will then pursue you for the arrears, interest, costs etc. They will almost certainly do this if you have a good job and you may end up paying for years. They will also come after you for any other assets you have. If you have a partner who is on the mortgage they will also pursue that person. It would be best to do everything possible to sell the investment property, even if you have to fund a loss it will in all likelyhood be cheaper than handing the keys back. I don't know how long a bad credit rating lasts but that would be the least of your problems.
 
I know when I took out my morgtage I had to purchase some kind of imdemnity bond, this meant that if the bank had to sell the house and make a loss this loss was covered by the indmenity bond.

Were you forced to take out such a bond?
If yes can you make the bank use it to take up the difference in house price and morgtage.
Does anybody else know about these products or if they are widespread pracitce.

best of luck with the situation, I am sore you are not alone.
 
The ICB will show the debt for 5 years (although I am open to correction and it might be 7 years) AFTER the debt is discharged. The debt can be discharged by the bank writing off the remaining arrears after the sales proceeds. The written off amount can be treated in one of two ways:
1 Get a judgement against your main residence
2 Sell the remaining debt to a third party.
After the sale of the investment property, I suspect they would write it off and put a judgement against your main residence. I say this is more likely becasue you have other assets which they will want to chase. If they sold it to a third party debt collector the bank would only get perhaps 25c in the €.

Brenbo - It is a difficult position for you and as many posters above have said, a reposssession on the ICB and a judgement make any form of credit almost impossible to get.
 
Your credit rating is affected for 5 years after you repay the debt so in the case of a large debt it could be years before you have a clear record.
Handing back the keys does not mean the lender will sell the property any quicker than you but you will be liable for the debt until the house is sold and the debt satisfied. Also you dont have any say over the selling costs, choosing an estate agent, negotiating a rate, agreeing an acceptable selling price. Also if on the market for a long period hte property will become rundown. Rather than go down that road would you consider the following:

-get a local letting agent to put in writing the chances of letting and the amount of rent that might be recd.
-get a local estate agent to put in writing what they think the property may sell for and how long it may take to sell it
-bring these documents along with an affordabe payment proposal to your lender which will show you are proactive about your debt and trying to resolve it
-ask for an interest only on your mortgage(s) for a year to see if market lifts, then they can review
-advertise invest. property to let
-if you have grown up kids let it to them if they can afford it
-try letting your own home and move in to investment property
-maximise your income by letting a room in your own home
-ask your local authority about the Residential Assesement Scheme (RAS) where the local authority pay the rent directly to you for a defined period. Rent may be a little lower but no voids

best of luck, hope it goes well for you

guby
 
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