Voluntary surrender while not in arrears

B

BigBoots82

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Evening folks. Your support on this matter would be greatly appreciated. We currently have a rental property which is c.40k in negative equity. Our tenants who have been steadfastly reliable have announced to us they are moving on early next year. Rather than put the property up for sale ourselves which we do not want to do, we are considering the option to voluntarily surrender the property to the bank and agree a repayment term for the residual. Not looking for debt write off or anything of that nature.

My questions are (a) Would a bank accept a voluntary surrender in this case? (b) Mechanically, how would the voluntary surrender work - would the bank take an open market value of the property today less costs of sale and reduce our mortgage by this amount? (c)What interest rate and term are likely to apply to the residual?

Thank you for considering.
 
Don't even think about it.

You will owe the residual in full and they will generally try to collect it over about 6 years at the mortgage rate.

But the banks are terribly inefficient and will get about 20% less than it's worth. So if your house is worth €200k and your mortgage is €240k, then you will end up with a deficit of about €80k instead of €40k.

So, you must try to sell it yourselves.

But you will need the lender's approval to sell it, which means that you have to show them that you can pay the shortfall.

The irony is that if you were in deep arrears, the bank might cut a deal.

Brendan
 
You might get more better answers if you shared:

Year of purchase
Outstanding mortgage balance
Years left on mortgage
Mortgage rate
Current value of house
Rent paid by departing tenants
Open market rent
RPZ or not?
Paying income tax on rental income at top marginal rate?

There might be a better alternative to trying to sell up immediately.
 
Thanks guys. Appreciate there are alternatives but for now really
looking just to undedstand a, b and c above.
 
My wife (a decade ago) sold with about €30k of negative equity. To clear the mortgage the bank advanced her an unsecured loan for the balance at about 10% for ten years. Repayments would've been maybe 15% of a very secure income.

This bank has since left the Irish market and I am not sure what incumbents do.
 
Hi Brendan. Your reply suggested to me and I may be picking you up wrong that in the case of a voluntary surrender the mortgage would only be reduced by the net proceeds actually received by the bank on sale. My understanding was you agreed a value up front with the bank and the mortgage was reduced by that amount before you legally transferred the property to the bank. It would be good to understand which of these 2 is correct.
 
BigBoots82 said:
It would be good to understand which of these 2 is correct.
Click to expand...
It'd be the net proceeds of the sale in your circumstances. And as @Brendan Burgess says, you lose control over how much the bank pursues best price. They'll also rack up other fees in the process.

The option of the bank determining a value only comes into play with difficult legal cases to speed up the process.

You're much better selling the property yourself. You'll need an agreement with bank in how you'll cover shortfall before they'll let you sell.

As @NoRegretsCoyote suggested, it's fairly typical for the shortfall to be at unsecured interest rates, but not always.

40k at 6% over 10 years would cost you 445 per month to repay.
 
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BigBoots82 said:
My understanding was you agreed a value up front with the bank and the mortgage was reduced by that amount
Click to expand...

Hi Big Boots

That fundamental misunderstanding is why your plan fails.

You need to have a fundamental rethink because it might be a lot better to continue letting the house. For example, if you are on a tracker rate, it means that most of your mortgage repayment is paying down the capital on the mortgage so you will be out of negative equity soon enough.

If you don't want to rent it out for some good reason, then you must get the bank's permission to sell it, which might not be easy. If you have cash or investments elsewhere, they will want you to clear the entire mortgage.

If you want meaningful suggestions, you should complete the following:

Information required for mortgage arrears and negative equity questions
 
On reflection, it's worse than I set out above.

The bank would take a year to sell it.

You would be making the full repayments for the year.

The bank would probably not let it out, so you would not get the benefit of any rent.

And they would pay an agent or security company to mind the empty house.

Brendan
 
Hi guys. Thanks very much for the information above. It sounds like we do indeed need to reconsider alternatives as the voluntary surrender sounds far worse in practice than we had anticipated.
 
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