Mortgage in Arrears - Bank holding up Sale

  • Thread starter SunShine Boy
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SunShine Boy

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Hi All

My first post here although I have been a lurker for some time. I will try to be as concise as possible.

My father had his own company for approx 15 years. It was put into liquidation in 2006 and he has been working a minimum wage job for the last 9 months or so.

During a period when the business was going well he decided to stop renting offices and build his own. His accountant advised him to create a partnership involving himself, his wife( a stay at home mother) and his son (on minimum wage also). The partnership owned the building.

The partnership rented the building out to the company which effectively paid the mortgage. Due to bad debtors and mismanagement the company was liquidated. The result was the partnership had no means of paying the full mortgage on the building from their own resources. My father also has other personal debts relating to the company but I want to focus on the mortgage today.

Since 2006, a few months interest-only payments were made on the mortgage but for most of that time no payments were made at all so the mortgage is increasing every month with interest/charges etc.

This is very nearly driving my mother into ill-health. While my father's personality prefers to take an ostrich approach and ignore the problem.

The building has been for sale for over a year now with not much interest until recently. My father rang the Bank a few months ago and said- listen we can't find a buyer, can we just sign the building over to you/let you repossess it coz the worry is affecting our health.

The Bank at that point told him it would be better if my father found a buyer.

We got a buyer last month !! :) Buyer has paid deposit.

However the purchase price is approx Eur 80,000 less than the mortgage balance - including interest/late charges etc - dropping property prices is also a big factor in this. The Bank sent a letter to our solicitor saying they won't agree to the sale unless we can come up with a proposal for paying the Eur 80,000.

This is where I have gotten involved - I'm a son but not in the partnership. I rang the legal dept of the bank, who were helpful, and said I need to speak to the Arrears dept- as they are the ones who need to agree to the price. I rang the Arrears person and he said it has gone legal- I felt as if he had lost faith in my father's word over the last yr or so (he didnt' actually say this).

The auctioneer has told my father that the buyer wants to be in by the end of the month and is getting anxious to get the deal completed.

I told the Arrears guy this and said that if we adopt an adversarial/confrontational/legal approach, we are in Grave danger of losing the buyer and the bank will got nothing - we'll be back to square one.

I asked for a meeting with the Arrears guy - with my father also. He said it's gone legal but our solicitors can request a meeting in their response to the letter the bank sent.

Our solicitor has been nothing short of sloppy in various ways I won't go into. Tomorrow I'm going the ring the solicitor and get them to fax/post a letter to the Bank requesting a meeting next Thursday involving Arrears guy, Bank's legal dept, my father and myself in Dublin.

We will give them two options - accept the price (350k approx) and write off the 80k as bad debt or the partnership will legally surrender any interest they have in the property to the Bank. With the property market the way it is, we can't foresee getting another buyer anytime soon.

What are our chances ?? Is this the best thing to do???

I would be greatful for any helpful input/comments.

Thanks

Sunshine Boy
 
From the banks perspective, I suppose they would need to be sure that there are no other assets owned by the partnership that they could register a charge against. I would think that it is unlikely that the bank would give up 80k if any of the partners own other property or have investments or savings.

I am certainly no expert in this area but my understanding is that the partnership structure does not facilitate your view that the bank should take the payment of the debt as being limited to the funds that can be achieved from the commercial property.

Do any of the partners have other assets?
 
Hi Ontour

My father's only asset is the family home. He doesn't even have a car at the moment as he sold his to pay off debts. My mother is a Stay at home housewife with a SW benefit due to a back injury. My brother, the last member of the partnership, is working a minimum wage job with at most €1000 to his name.

My father also has a pension that the company paid into for him over the years. However he is cashing that in as he has a company overdraft that he went personal guarantor for with the same bank as has his pension. So that's gone.

I know that members of a partnership are personally liable for the partnerships's debt.

However, the only asset the Bank can go after is the family home. The home is worth approx Eur 250,000 with a Eur 45,000 mortgage outstanding.
I guess they can try to put a charge of some sort on the family home for Eur80,000. However, my parents will be in this house until the day they die and we, the children, will inherit it. So that may be a fruitless exercise for them.

I am very concerned about the effect this whole debacle has had on my mother's health over the last 2 years and given the fact that my father is passive/lacks courage, I am keen to drive through a resolution to the mortgage on the building issue within the next week or two. As I say we hope to meet the bank in person next Thursday in Dublin.

We have a buyer who has paid a deposit. I feel if we don't resolve this now it could drag on another 2 years given the difficulty in getting buyers in this property market and by then the mortgage could be 60k higher. We are in a good position now to bring closure to it I hope.
 
I would imagine that the bank will be unwilling to simply write off the €80,000 as a bad debt without some form of undertaking from the partnership to repay what they owe in the future.

On a separate note, it is impossible for a bank to take an assignment over a pension fund and in any event a pension fund cannot be cashed in, except at retirement.
 
Hi Dave

Thanks for your input.

My point is that there is literally no way the partnerhship can get Eur 80 k together - without selling the family home and that obviously is not going to happen.

My viewpoint is that there is no fraud/criminality involved here - my father's company went bust and we're still trying to dig ourselves out of the resulting mess. The Bank will recoup the majority of the money owed to them.

The Bank approved the mortgage in the first place and I am sure in cases like this they write off bad debts week in week out - they actually expect a certain percentage of their lending book to go bad.

While I am not into Bank-bashing, personally I feel no sympathy for the Banking industry. They have made millions/billions out of Irish mortgage-holders over the years.

My primary concern is to stop these Solicitor letters coming in and shredding my mother's nerves to pieces. I do feel that if you lie down, these banking executives will milk you dry but if you stand face to face and eye-ball them you can bring this sorry situation to an acceptable end for all concerned.
 
Hi Boy

I am sorry for your difficulty.

my parents will be in this house until the day they die and we, the children, will inherit it.
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Why? If your father owes the bank €80k and can't pay it, they can get a judgment and register it against the home. They would have difficulty in getting your parents out, but it would not be conveyed to you on their death, without the bank being paid off.

The bank has all the legal stuff in its favour here. You need to go into them and appeal to their better side - you need to get them to agree, on health grounds, to write off the balance. If they say no, there isn't a lot you can do.

Banks don't like losing money on property loans which they thought were secure.

Brendan
 
In relation to the pension fund. It is with AIB. The company overdraft he went personal guarantor for is also with AIB.

I was also of the opinion that pension funds can't be touched until retirement (that's the whole point of them). However it was actually an AIB person who was speaking to my father about the overdraft and said "well, you have a penion with X in it... that will cover it".

My father has been told and that it will be "worked" (didn't give details on how) that the cash will be released from the pension to repay the overdraft.
 
Hi Brendan

I have heard about judgements against houses. Am I right in saying that this basically gives them partial ownership of the family home ?

For example the home is worth €250k and if they get a judgement for €80k, then they own 1/3rd of the house ? Is this right?

From my amateur way of thinking, this still leaves my parents in control as they will own 2/3rds. The Bank will not be able to do anything (i.e sell the house) without my parents consent.

Then when we (the children) inherent our parent's 2/3rds interest, we will still be in control. It will only be if we decide to sell the property say in 30 years time that the bank will recoup it's money... and obviously we would be loathe to sell because of this. Or is there a time limit on Bank Judgements on family homes ?

Or have I got this all wrong ?
 
If the bank register a judgement, it is for a specified amount rather than giving them a share of the property. If the house doubled in value, they would not be entitled to 160k. It is my understanding that they house could not be passed to the children without this debt being paid.
 
Hi Ontour

Just done a quick Google on judgement mortgages.

One law firm's site said they last for 7 years.

Another law firm's site said they last for up to 12 years (if renewed every 5 years).

Therefore, on initial examination, if the Bank gets a Judgement mortgage and my parents, hopefully & touch wood, live longer than 12 years then the Bank will get nothing.

Interesting stuff.
 
Hi SunShine

I think you are taking the wrong approach to this. First, get rid of your solicitor immediately. It is very difficult to deal with these type of issues without a good solicitor.

You need to know where you stand, and you need to have a realistic assessment of the weaknesses of your case.

We will give them two options - accept the price (350k approx) and write off the 80k as bad debt or the partnership will legally surrender any interest they have in the property to the Bank
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You are not giving the bank options. They have all the cards and you are making proposals. Banging the table and threatening them is unlikely to get you a good deal.

You can't "surrender your interest in the property". People feel that they can just hand back the keys. This is not correct. The partnership has a loan and must pay it off. It happens to be secured on the property. If the proceeds of the sale does not pay off the loan, the partnership is liable for the balance.

You might be better meeting them with a new solicitor without your father being present. He has avoided the problem. You can apologize on his behalf. You could offer security for the shortfall on your parents' home.

Or they might just accept cash of €40k if you could raise that on your home or some other family member's home.

Brendan
 
Hi Brendan

I agree with you 100% on the new solicitor issue - the solicitor we are dealing with is an "employed" solicitor in a local firm who dibble dabbles in different areas of law but doesn't seem expert in any. The managing partner or "owner" of the practice has a good reputation himself locally so I'm gonna try to get the file dealt with by him. Failing that, I will research other solicitors in my locality.

Basically the erosion of family morale and psychological effect on my mother of having this dark cloud hanging over us ( she is oldschool and doesn't even know how to work an ATM card - has never borrowed from a bank - apart from being dragged into partnership) is becoming destructive far beyond what is reasonable considering she is faultless in all this.

This does make me angry but I will not be banging any tables or losing my cool. I intend to be an advocate for my parents as any son would - especially as they both left school at 13 etc...

I don't own any property - neither does any one in my direct family - apart from my father and the family home.

My father also has other debts relating to the company - two overdrafts he went guarantor on and a Director's Loan he took from the company - which of course he is personally liable to repay.

So we literally have nothing to offer, outside family home, in relation to the mortgage on the building.... I feel 350k is a huge chunk of what is owed to the Bank (420 -430k) so, one way or the other, we are going to have to get them to accept it as full settlement.

The only other option open to them that I can see is a 80k judgement mortgage on the family home. I need to verify this with a solicitor but if no transactions occur on the home within 12 years, they will get nothing from that route.
 
This does make me angry but I will not be banging any tables or losing my cool. I intend to be an advocate for my parents as any son would - especially as they both left school at 13 etc...
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But who are you angry at? Your parents? That doesn't help.

The bank? They lent your father money and he did not pay it back and then avoided them?

Forget the anger in trying to get a good deal.

I need to verify this with a solicitor but if no transactions occur on the home within 12 years, they will get nothing from that route.
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I really would not take this approach at all. Don't try to screw the bank. I am quite sure that the bank is entitled to renew its mortgage. If it does nothing for 12 years, then maybe it lapses.

Approach the bank in a constructive manner and you might get somewhere. If you tell them to get a judgment mortgage which will die in 12 years, they really will not be open to dealing with you.

Brendan
 
I'd advise you also to stick to the facts when dealing with the bank (and your solicitor). Details about your parents' health, education, disabilities, whether they can work an ATM etc etc are totally irrelevant.
 
I agree Extopia.

The facts themselves are pretty simple and stark.

It is almost like we are expected to get blood from a stone or make money appear out of thin air.

We will fully disclose our situation to the Bank but I feel like it is a total waste of everybody's time for the Bank to refuse €350k because we havn't waved a magic wand to add €80k to the pot.

We will not be held under the Bank's thumb like this indefinitely. I am also concerned about how the mortgage gets bigger every month because of late charges etc... I am concerned about how the Bank is incentivised to drag the process out.... for example, if this sale falls through, we'll owe them 450k next year, 480k the year after that.

There is absolutely nothing to be gained on our side by dragging this process out. That is why I want to bring it to a conclusion as soon as possible.
 
Well a judgement against your parents house seems like a fair solution to make up the balance. If the bank is prepared to wait for its money, and you're happy to pay continued interest on the sum, well then it seems to be the solution.

Expecting the bank to write off the balance is not realistic.

But I am not a legal expert.

Best of luck with your negotiations.
 
Thanks Extopia

My first priority is to get the Bank to accept the buyers 350k and release the deeds to him.

This reduces the partnerships mortgage debt from 420/430 to 80k. A huge plus. Concurrently we have to agree something, most likely judgement mortgage, in relation to the Eur 80k.

Then we can start dealing with the other debts my father owes.....

I will need to investigage it further and get legal advise.... but given that he is looking at minimum wage employment for the rest of his working days and has no plans to start another business, :), then bankruptcy might be an option for him. It's an option.

In the meantime, thanks for the words of advise and support !! :). They are very important as when the **** hits the fan... you can find yourself/yourselves in a very lonely place.
 
Hi All

Just to fill in those of you who are interested or in a similar situation:

I made contact with a new solicitor.
The new solicitor made contact with the Bank's legal dept who referred him back to the Debt Recovery section.
The new solicitor spoke to the senior person in the Debt Recovery section. The Result:

We got a letter from the Bank saying they are happy to release the deeds of the building in return for the sale price. However they will still hold the partnership liable for the remaining debt - approx 80k.

This is a great positive for us. We are currently at the point where contracts have been exchanged but not signed as yet. This whole Bank thing (re getting them to release the deeds) delayed getting the contracts ready by about 6 weeks.

The last time we spoke to the Auctioneer he said the buyer was still keen. However the buyer moved to a new rented premises at the end of last month which is a bit worrying - he had to be out of his old rented premises last month.

If this sale goes through - there is a strong light at the end of the tunnel. If it doesn't we are in the words of our new solicitor "f*****".

Still ..... gotta be positive !! :)

I send my best wishes to others in a similar position !!
 
Best of luck with the transaction and in dealing with the remaining debt. Let us know how it goes and whether the €80k judgement mortgage is what the bank settles with.

I personally think that they may request a combination of a judgement mortgage and some form of repayment plan from the partnership to drive down the balance owed (albeit slowly).
 
During a period when the business was going well he decided to stop renting offices and build his own. His accountant advised him to create a partnership involving himself, his wife( a stay at home mother) and his son (on minimum wage also). The partnership owned the building.
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This is one of those "property values always go up" scenarios. This is great when property prices increase because any profits from the eventual sale of the building belong to the 3 individuals, not the company. But people forget that property doesnt always go up in value.

If the property had been in the hands of the limited company, the debt would have died with the limited company.
 
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