How to deal with negative equity following unemployment and relationship breakup

[Carolina]

A friend of mine bought property with gf for 350K. He is now unemployed. Property now worth 150K. He is a building labourer. Gf works in a shop.

They have made all payments to date but the mortgage is interest only and reverting to repayment in the summer.

He is renting out the property for 900. Repayments have been 1400 but rising to 1700 in summer. He needs to stay unemployed for a year so he can qualify for a grant to return to third level education this autumn.

His gf may emigrate at any time and leave him liable for all the debt.

He tells me he now intends to default.

Is there a better option?

Is there any chance the lender would agree to some voluntary arrangement including some debt forgiveness rather than suing and getting nothing but the property and incurring legal costs?

Does he have to stop payments in order for the lender to consider his case?

 

[csirl]

I know property has dropped a lot in value, but 350k to 150k is a lot larger than the typical drop? Are there any reasons for this?

He needs to stay unemployed for a year so he can qualify for a grant to return to third level education this autumn.

As he has financial responsibilities, he would be better looking for a job to clear his debts than going on the dole for a year.

 

[Carolina]

I know property has dropped a lot in value, but 350k to 150k is a lot larger than the typical drop? Are there any reasons for this?

1 bed apt in Dublin bought at the absolute peak. It's a large development with many more new units since completed and many now being sold by the council under affordable housing.

As he has financial responsibilities, he would be better looking for a job to clear his debts than going on the dole for a year.

As he is unskilled, he now wants to get some education to be able to do a fulfilling and well paid job. He has 3 months left being unemployed to qualify for back to education allowance. He has managed to make the payments to date by using savings and selling possessions, moving back with parents and renting out the apt.

He accepts culpability for this situation but is potentially facing a 200K shortfall. Any advice on what he should do? I think he has done well so far to maintain payments.

He is 25.

 

[truthseeker]

Op - How is he facing a 200K shortfall? Is the gf not liable for 100k of this?

About her deciding to emigrate - half is still her financial responsibility, not his, and emigrating wont change that.

I dont understand the logic behind waiting for BTEA - why is he not looking for a job and studying in the evenings? Has he done any kind of study in the past 9 months? If not, why not? Even if he gets BTEA - the applications for college may mean that he is too late to apply until next years round of applications. Would he even qualify - there are far more people applying for 3rd level places as a result of the recession.

He clearly cant afford to be in college exclusively for the next few years, its irresponsible of him to choose this option. There is nothing stopping him bringing his education up to a higher level part time and at his own cost (if he got any job) to get him a better job later on.

 

[idkwatmi]

Op - How is he facing a 200K shortfall? Is the gf not liable for 100k of this?

About her deciding to emigrate - half is still her financial responsibility, not his, and emigrating wont change that.

I dont understand the logic behind waiting for BTEA - why is he not looking for a job and studying in the evenings? Has he done any kind of study in the past 9 months? If not, why not? Even if he gets BTEA - the applications for college may mean that he is too late to apply until next years round of applications. Would he even qualify - there are far more people applying for 3rd level places as a result of the recession.

He clearly cant afford to be in college exclusively for the next few years, its irresponsible of him to choose this option. There is nothing stopping him bringing his education up to a higher level part time and at his own cost (if he got any job) to get him a better job later on.

My thoughts exactly. If he bought with his GF well then she is just as much responsible for whatever shortfall there maybe. I admire his ambition to get qualifications but now perhaps is not the time.

 

[Carolina]

Op - How is he facing a 200K shortfall? Is the gf not liable for 100k of this?

I think the phrase is 'jointly and severally liable'. In other words, he owes her share if she can't come up with the money and vice versa. Standard on an irish mortgage, I believe.

About her deciding to emigrate - half is still her financial responsibility, not his, and emigrating wont change that.

He could sue her for her half but only if he knows where she is and can afford the legal costs of an international lawsuit.

I dont understand the logic behind waiting for BTEA - why is he not looking for a job and studying in the evenings?

He can't get a job or he will be disqualified from BTEA.

Has he done any kind of study in the past 9 months? If not, why not?

Yes he has been studying.

Even if he gets BTEA - the applications for college may mean that he is too late to apply until next years round of applications. Would he even qualify - there are far more people applying for 3rd level places as a result of the recession.

I believe he has a place but I'm not sure.

He clearly cant afford to be in college exclusively for the next few years, its irresponsible of him to choose this option. There is nothing stopping him bringing his education up to a higher level part time and at his own cost (if he got any job) to get him a better job later on.

He can't afford to pay his mortgage from the earnings of the kind of minimum wage job he is qualified to perform.

What would you do in his situation?

------edit-------
Just realised that truthseeker is asking why he wants BTEA rather than just getting a job and doing college by night. I presume the answer here is that doing a course by day is far easier than attempting to do it by night while working. There is also a narrower range of degrees by night. The dole pays 196 a week, whereas a fulltime job in spar might only pay 100 euro more.

 

[95a]

The bank won't forgive any of the debt but they may continue to accept the rent and restructure the payments, this isn't a long term solution though.

They also might consider allowing the sale of the property and converting the shortfall to an unsecured debt. however with a €200K shortfall this might be a stretch.

While not very ethical, the best solution might be for him to emigrate and ignore the mortgage. If a borrower gives no acknowledgment of a debt for a period of 6 years - i.e. makes no payments and has no contact with the bank - they are statute barred from taking legal action. While in that time they'll have probably repossessed the house at least they can't sue for the shortfall. It would take at least year for legal action to begin so he could continue to collect the rent for quite some time.

 

[PaddyBloggit]

" If a borrower gives no acknowledgment of a debt for a period of 6 years - i.e. makes no payments and has no contact with the bank - they are statute barred from taking legal action.

While in that time they'll have probably repossessed the house at least they can't sue for the shortfall. It would take at least year for legal action to begin so he could continue to collect the rent for quite some time."

Is this true?

 

[Carolina]

If the bank accepted the just the rent for 4 years, the he could start paying back the capital when he finished college from his future high paying job.

I'm not saying it's untrue but I find the 6 year story hard to believe. If this were true wouldn't everyone do it?

 

[fizzelina]

If the bank accepted the just the rent for 4 years, the he could start paying back the capital when he finished college from his future high paying job.

I'm not saying it's untrue but I find the 6 year story hard to believe. If this were true wouldn't everyone do it?

From his future high paying job? I am aware of many graduates without high paying jobs and I certainly would not assume he is going to come out of a college course into a high paying job to be honest Carolina. What course does he plan to do? Is there still employment in that area?
And yes where did that 6 year story come from, first post of the guy too, does he defo mean that's the case in Ireland?

 

[truthseeker]

If the bank accepted the just the rent for 4 years, the he could start paying back the capital when he finished college from his future high paying job.

Thats not a realistic option. His future high paying job might not materialise for a long time. Plus, graduates straight out of college with no experience tend to be on very low money (not much more than minimum wage) for the first few years until they have experience in the field.

In addition, a lot of high paying jobs have taken pay cuts and/or been handing out redundancies, so theyre not as high paying as they once were if they even exist anymore, so he will be up against people with a good qualification and experience in the field who are willing to work for less than they were a few years ago.

What is he planning to study? Is it something that would give him a good chance in the job market?

 

[Sunny]

While not very ethical, the best solution might be for him to emigrate and ignore the mortgage. If a borrower gives no acknowledgment of a debt for a period of 6 years - i.e. makes no payments and has no contact with the bank - they are statute barred from taking legal action. While in that time they'll have probably repossessed the house at least they can't sue for the shortfall. It would take at least year for legal action to begin so he could continue to collect the rent for quite some time.

Don't even consider following this advice.

 

[Carolina]

I don't want to reveal the job but it is state sector & has plenty of openings and starts on 33K, increasing each year up to 47K after 10 yrs (not so high paying!) There are promotion possibilities.

The gf defaulting is worst case and she may continue to pay.

 

[95a]

39.—At the expiration of the period fixed by this Act for a mortgagee or chargeant to bring an action to recover a principal sum of money secured by a mortgage or charge on personal property (other than a ship), the right of the mortgagee or chargeant to the principal sum and interest shall be extinguished.
irishstatutebook.ie/1957/en/act/pub/0006/sec0039.html#zza6y1957s39

I can't say I'd recommend it 'cause I wouldn't do it myself. I'm just saying that depending on one's circumstances it could be preferable to being saddled with such extreme negative equity.

 

[csirl]

The dole pays 196 a week, whereas a fulltime job in spar might only pay 100 euro more.

100 per week extra working in Spar = 5,200 per annum
900 per month rent = 10,800
TOTAL = 16,000

Mortgage = 1,700 per month = 20,400 per annum.

The gap between the 2 is only 4,400 per annum. Close enough that any bank would be interested in doing deal to either lengthen the term, have a payment break or convert to interest only (1,700p/m suggested repayments are capital + interest).

So the working in Spar option is very realistic.

There is a big danger that the Courts may take a view that your friend is capable of coming to a very realistic arrangement with the banks, but is not facing up to his responsibilities.

 

[fobs]

I have heard the advice to emigrate and ignore your debt before. i wonder in this case would it indeed suit the person in this situation as he an no longer afford the property and has no chance of ever being in a position to pay off the loan. I think some solution to this will have to be found as at the moment what is the way out of this situation for the person i.e. how would they ever repay the 200,000 in the worst case scenario?

 

[newkid30]

I don't want to reveal the job but it is state sector & has plenty of openings and starts on 33K, increasing each year up to 47K after 10 yrs (not so high paying!) There are promotion possibilities.

The gf defaulting is worst case and she may continue to pay.

I am REALLY curious as to what area he is going to be studying in? I update advertisments on a Public Service website, and I can tell you there, are very few jobs advertised regularly, those that are advertised, receive huge volumes of applications, many by people with qualifications above and beyond what's required, a bare graduate has NO hope until they get some kind of experience or do a postgrad being honest!!

Also though new jobs are coming online, public sector managers have to go through reems of red tape to get the go ahead to recruit somebody new. As regards the pay scales, the tax clawback far outweighs incremements at the moment.

He should just work and study in the evening, there are very few degrees now adays that you can't do part time.

 

[Carolina]

The gap between the 2 is only 4,400 per annum. Close enough that any bank would be interested in doing deal to either lengthen the term, have a payment break or convert to interest only (1,700p/m suggested repayments are capital + interest).

So the working in Spar option is very realistic.

Thanks, I hadn't even considered that. The term is 30yrs already so not much room for reduction. Interest only doesn't pay off any debt and it only makes sense where you expect to have an income rise in future.

There is a big danger that the Courts may take a view that your friend is capable of coming to a very realistic arrangement with the banks, but is not facing up to his responsibilities.

I wonder how the courts would treat him if he went to college for 4 yrs full time and just paid whatever he could. Short of locking him up, they can't do much to him. Do you get locked up for failing to pay all your mortgage on time?

I have heard the advice to emigrate and ignore your debt before. i wonder in this case would it indeed suit the person in this situation as he an no longer afford the property and has no chance of ever being in a position to pay off the loan. I think some solution to this will have to be found as at the moment what is the way out of this situation for the person i.e. how would they ever repay the 200,000 in the worst case scenario?

I don't think he wants to emigrate given that his friends and family are here. Also I suspect that while it may have worked in he past that in a more modern world, people won't be able to hide from their debts in this way.

I am REALLY curious as to what area he is going to be studying in? I update advertisments on a Public Service website, and I can tell you there, are very few jobs advertised regularly, those that are advertised, receive huge volumes of applications, many by people with qualifications above and beyond what's required, a bare graduate has NO hope until they get some kind of experience or do a postgrad being honest!!

OK, you'd probably know better than most. We are talking about 4 yrs time of course.

I am wondering what you would do in his place? He is very capable but with no 3rd level education facing into very large debts. He is dependent on his parents (who supported his original decision to buy).

 

[truthseeker]

I am wondering what you would do in his place?

If I was in his position, Id keep renting it out. Id look for a job, any job and study part time. Id continue to pay my half of whats left after rent has been paid and Id expect ex GF to keep paying her half also.

Id be looking at all of this as a temporary plan, so at some point in the future Id have a better job (either through re-education or progression in whatever job I get).

Obviously all this works only if I can get a job. If I couldnt get a job Id go and talk to the bank and see could I pay less until I could get a job.

Id forget about full time education for the immediate future.

 

[Kine]

Full-time education also has some large costs associated with it.

Fees, books, laptop, travel etc....it ain't exactly free wither.