What happens if you need to sell with negative equity?

D

dyanne

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Hi, hope someone can help me please - I'm clueless!:eek:

My partner owns a house with his friend, currently they have negative equity but both want to sell..

The Mortgage outstanding is 400k
The current house value is 350k

What happens?
Do they both leave with a debt of 25k each?
Do mortgage providers protect against it?

Really appreciate any replies
Thanks x:confused:
 
If they sell the house for €350K and they owe the lender €400K then they need to find €50K to pay the balance to the lender.
 
In practice I don't see how they can get out of this situation without coming up with another 50k to repay the entire outstanding mortgage in one go. What financial institution is going to let them repay 350k and then release the security so that ownership can be transferred? They would then be left with 50k unsecured debt!
 
In short, they cannot sell until they can come up with the extra €50,000 to clear the mortgage.
 
I haven't come across it yet professionally but apparently what some lenders are doing is repossessing the property but allowing the borrowers to "rent" from them while the market is slow. I guess that the banks will be hoping it picks up in the next couple of years and then they can sell. It may have been in an article in the SBP.
 
Do eitehr of them have other property on which they can raise the shortfall?

(I note my previous post probably isn't relevant to this situation as at least one owner is not living in the property)
 
Thanks for all your replies.. It's not looking good so!

Camry: So if there is a problem that needs to be resolved (i.e. these friends are not simply trying to find away to extract themselves form something that didn't pan out the way they hoped it might), then talk to the lender. You never know.

Well I suppose it couldn't hurt to talk to the lender, it is very unsual circumstances. They do have to sell.

Thanks again

Dyanne x
 
In practice, if they sell for full value and if the bank are getting the full nett sale proceeds, the bank must release the property held as security. Their solicitor can advise in more detail, but certainly they cannot be prevented from selling (as long as it is for full value, of course - sometimes the only way to prove this is to sell at auction).

Once the place is sold, the two will remain liable to the bank for any shortfall arising. If the bank reckons that they are ( ultimately) good for the money, it may well be slow to write off any part of the debt. If, on the other hand, they are already in trouble, the bank may well be glad to work out a settlement in return for co-operation on seeing the property quickly sold.

Liability is joint and several. If one of them is good for the money and the other isn't, then the one who is good for the money might want to try to do a deal with the bank to pay half the shortfall in return for a release from further liability. It may be that they will each need independent advice.
 
and so it begins, get the parachutes ready!
hope you don't mind me asking but is this a very recent purchase or did your partner get any top-up mortgages or was it a 100% mortgage in the first place? i didn't think the downturn would result in negative equity so quickly unless there were other issues involved
 
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dereko1969 said:
and so it begins, get the parachutes ready!
hope you don't mind me asking but is this a very recent purchase or did your partner get any top-up mortgages or was it a 100% mortgage in the first place? i didn't think the downturn would result in negative equity so quickly unless there were other issues involved
Click to expand...

derek, most people who bought in the last two years on very highly LTV mortgages are now in negative equity
 
dereko1969 said:
and so it begins, get the parachutes ready!
hope you don't mind me asking but is this a very recent purchase or did your partner get any top-up mortgages or was it a 100% mortgage in the first place? i didn't think the downturn would result in negative equity so quickly unless there were other issues involved
Click to expand...

Well.. I didn't want to go into full detail as I would certainly be advised to use a relationship site rather than a financial one!
Basically my partner bought a house with a family member (previously I said a friend) a year ago with a view that we would all move in together... the relationship has since turned nasty and my partner now wants out so he can set up home with me.

To be honest in my opinion, the house was over-valued in the first place, by the time it went to sale agreed it had already lost value..
 
dyanne said:
Well.. I didn't want to go into full detail as I would certainly be advised to use a relationship site rather than a financial one!
Basically my partner bought a house with a family member (previously I said a friend) a year ago with a view that we would all move in together... the relationship has since turned nasty and my partner now wants out so he can set up home with me.
Click to expand...
Not unusual judging by other similar posts on AAM over the years. Non married joint buyers really should put in place a clear agreement to deal with this and other sorts of eventualities. There's a draft example in the key posts thread.
 
It might be possible to add the outstanding amount (say €25,000 in this instance) to the mortgage to buy another house; assuming that the new mortgage is with the same lender and the lender agrees to the arrangement. Some UK banks certainly accommodated customers with negative equity in this way, during the 90's.
 
Duplex said:
It might be possible to add the outstanding amount (say €25,000 in this instance) to the mortgage to buy another house; assuming that the new mortgage is with the same lender and the lender agrees to the arrangement. Some UK banks certainly accommodated customers with negative equity in this way, during the 90's.
Click to expand...


Thats kind of self defeating though - is it not? Sell one house , suffer negative equity and then borrow more than a (new) house is worth to buy that? Banks don't like lending more than a property is worth - though, mind you, the 100% mortgages they were until recently willing to offer, were a horrible idea and a desperate temptation.

mf
 
Have you thought also that the house might not even reach €350k when selling.
 
Would one of the purchasers be in a position to buy out the other one and take the decrease in value into account when reaching a settlement figure?
 
Marg said:
Would one of the purchasers be in a position to buy out the other one and take the decrease in value into account when reaching a settlement figure?
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A = My partner
B = Family member

No Marg, B is not keen on selling the property so as not to terminate the ties A would be taking the full brunt of the loss/debt and B is not in a position to buy A out..

Reading all the replies it sounds like it would be in the best interests (financially) of everyone involved to sit on it at the moment in the hope the value of the house goes up again.:rolleyes:

Thanks for all your help x
 
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