# joint mortgage problem



## in the mire (16 Aug 2011)

Hi folks, I met some friends last week and this is their story below, would any of you have any ideas of a possible solution?

Mary aged 40 and Liz aged 36 (brother & sister) bought a house in 2006 to live in, They got a 25yr  100% joint mortgage for 240K and they are currently paying 750 pm each. Liz got married last month and moved into her husbands house. Husband also has a mortgage on his house. Mary (single)is now living on her  own in the house and liz is still paying 750 pm to the joint mortgage. The problem is, liz needs to contribute to her and husbands home bills, mortgage etc but cant afford to while still paying joint mortgage with Mary. They both owe 115K each to joint mortgage and the property is now worth about 160K-170K. So options available
1)      Mary takes over paying off the whole mortgage and liz signs over full ownership of the house to Mary, Liz walks away with nothing after paying 5 yrs mortgage. But I think the bank wont be happy with this arrangement as that would be like “ all eggs in one basket” they may prefer to spread risk over both people. Mary is reluctantly saying she will take on full mortgage and will just about be able to afford it. maybe rent out a room for 250pm to help pay.
2)       Liz rents out her half for about 250pm which is subject to tax and costs etc.
3)      Mary moves out and they jointly rent the whole house for 650pm , But Mary will have rent/share(closer to work)  but this could cost say 300 to share or 650 to rent and also loose her TRS of about 80pm
4)       sell the house and both take the loss of about 60k-70K and devide it between them and pay off over a long period. 
5)      Mary and liz have other personal loans of say 10K each to pay off also.

I’m thinking option 1 or 4, with option 4 if they paid off say 35k each over a period of time, wouldn't it work out cheaper than paying off 115K?


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## frostie (16 Aug 2011)

in the mire said:


> Hi folks, I met some friends last week and this is their story below, would any of you have any ideas of a possible solution?
> 
> Mary aged 40 and Liz aged 36 (brother & sister) bought a house in 2006 to live in, They got a 25yr  100% joint mortgage for 240K and they are currently paying 750 pm each. Liz got married last month and moved into her husbands house. Husband also has a mortgage on his house. Mary (single)is now living on her  own in the house and liz is still paying 750 pm to the joint mortgage. The problem is, liz needs to contribute to her and husbands home bills, mortgage etc but cant afford to while still paying joint mortgage with Mary. They both owe 115K each to joint mortgage and the property is now worth about 160K-170K. So options available
> 1)Mary takes over paying off the whole mortgage and liz signs over full ownership of the house to Mary, Liz walks away with nothing after paying 5 yrs mortgage. But I think the bank wont be happy with this arrangement as that would be like “ all eggs in one basket” they may prefer to spread risk over both people. Mary is reluctantly saying she will take on full mortgage and will just about be able to afford it. maybe rent out a room for 250pm to help pay.
> ...



Renting the house out isn't going to be an option - they are paying €750 EACH - even if they got €650 a month, they are still in the hole for €850 extra per month, and Mary would still need somewhere to live.

It's dead as an investment for Liz too, but they are jointly liable for the property, so the bank can still pursue Liz as well as Mary for the difference, not half of it - all of it.

By the sounds of it, there's no quick fix here. I think they need to sell it and come to an arrangement with the bank for the balance. If they have any savings, they may be able to offer this to the bank as part of a settlement along with the proceeds of the house, and the bank may take part of the hit.


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## niceoneted (16 Aug 2011)

How secure is Marys job and can she afford to pay the mortgage on her own?
While you say option 4 makes it easy to pay off 35k rather that 115 k there is nothing owned at the end. 
I would start by perhaps have mary use the rent a room scheme to bring in extra money towards the mortgage. 
What about Mary taking over 75% of the mortgage with Liz still having a share. It will ease the burden on Liz and not over burden Mary.


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## hastalavista (16 Aug 2011)

1 will create CAT liability for Mary of (X-33k) * 25% where X = half the market value.

I would suggest they go to Bank under the MARP process and get the term of the mtg extended and the rate reduced.
[Put _"MARP" site: centralbank.ie_  into google advanced search]

Based on the figures provided it seems the rate is 7%

(750 + TRS of 80) by 2 for 240k over 25 years gives me c 7%

The MARP process will make it very clear if in fact Mary can service the full running costs of ownership

Looking at it from Mary's perspective only, the house may be in fact her pension and therefore any transaction must crystalize any loss so as Liz can stop up to the plate.

Sell the house to Mary at say 160 and crystallise the loss for both of them.

Mary can take her half on as part of house mtg and let Liz stick her loss on her hubbies mortgage.



Selling to a 3rd party now leaves Mary 'homeless' with her half of the loss as baggage


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## frostie (16 Aug 2011)

hastalavista said:


> Looking at it from Mary's perspective only, the house may be in fact her pension and therefore any transaction must crystalize any loss so as Liz can stop up to the plate.
> 
> Sell the house to Mary at say 160 and crystallise the loss for both of them.
> 
> ...



The difficulty here is nobody knows the situation with the husbands mortgage. He could well be in neg equity as well, and is under no obligation to assume this debt. 

Mary can rent after the home is sold, and her circumstances would have to be taken into account in any repayment structure agreed with the bank. Both Liz and Mary need to come to an agreement on repaying the difference with the bank. If possible, if the husbands house had some equity, a secured loan to cover the difference could be put forward with a separate agreement between Mary and Liz to pay this loan off. But again, it's down to the hubby - his name's on the house, and it depends on the state of his loans on that house whether equity is there or not.


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## hastalavista (16 Aug 2011)

I agree we don't know about the hubby, my comment was somewhat tongue in cheek, the OP had not listed the idea.
the key points for me here are
1 to crystalize the loss 
2 break the joint and several liability
3 get Mary out of Liz's hair, especially from her hubbies perspective as any payments Liz has to make should be clearly annotated as being related to her part of the NE loss and not at all be construed as 'supporting your spinster sister'. The hubby needs to realise that Liz is on the line for the whole NE, not just her half.
4 leave Mary with an 'owned' roof over her head


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## in the mire (17 Aug 2011)

thanks for your replies, to answer a question, no the husband would not be in a position to add on the NE to his mortgage, i think he is already stretched as it is, Hasta, would there be CAT involved if liz signs over the mortgage to mary?is it a "gift" or what would you describe it. if true would that be about 32k on a valuation of 160k? which to add that on top of paying full mortgage now becomes a problem. yikes!!! my thinking is that, sell up the house lets say there is 70k of NE left , so that is 35k each. doesnt it cost less to pay off 35k rather than 115k, I know you have nothing at the end of paying off 35k but how much would they have paid if they pay off 115k each over 20yrs and at that point what would the property be worth. i doubt the property would be the value of the money paid to pay the mortgage off, if you know what i mean.


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## frostie (17 Aug 2011)

in the mire said:


> i doubt the property would be the value of the money paid to pay the mortgage off, if you know what i mean.



that's right, it's not going to be worth Mary's while to stay in the house. I also can't see the bank agreeing to Mary taking sole ownership of the mortgage obligations to get her sister off the hook - seems fairly clear that they cannot afford to keep the mortgage going, and the bank will not waive Liz's liability, as hasta says, she, like mary are jointly liable for the full amount. At the same time though, if Liz's name is not on the hubby's property, at least _their_ home is safe.

There's nothing wrong with renting when keeping hold of this house is obviously not feasible, and going interest-only etc will only kick the problem down the road for a later date, while the negative equity gap will rise, leaving a higher liability when the home is eventually taken back/sold on.


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## hastalavista (17 Aug 2011)

I don't think selling the house should be considered at this point.

I think Liz and Mary should avail of the MARP  process and see what is the best deal they can cut with the bank now.

Mary should price life cover for the principal at risk here, at 40 and a woman assuming no health issues she should get flat life cover at 50 euro per month per 100k for 20 years

Once the capital is covered and the loan is being serviced the Bank will be fairly relaxed.

By servicing I don't mean a full repayment of capital and interest, there are deals to be done as the banks don't want to have a raft of repossessions.

ps
CAT is payable whether a gift or inheritance


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## Balou (18 Aug 2011)

There seem to be a lot of problems similar to this on AAM. I dont think there is one right answer to this but the fairest suggestion I have seen to date is effectivly for one person to theoretically rent the house from themselves. If Mary stays in the House and pays the going rent in the area of €650 and Mary and Liz split the difference as they would need to if they had both moved out. Mary pays €1075 (€650 + €425) and Liz pays €425.


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## in the mire (25 Aug 2011)

Hi Balou
That's an interesting solution, is this a tax advantage i.e they have one year left on their TRS, so i assume they will have to give that up. then mary who is renting, can she claim rent relief? and then do they both submit rental income at YE. if i'm wrong can you expand more on your suggestion. Thanks


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## Balou (26 Aug 2011)

As I would see it (i'm not an expert)... As the liability is on them jointly there is no law to state they have to pay in equal amounts or they both need to live in the house. Liz may need to give up her TRS as its not her PPR but Mary could still claim hers as far as I am aware. It would be an informal arrangement (although we call it "rent" for explanitory purposes in legalities Mary and liz would just be agreeing to pay in unequal proportions so Liz's savings shouldnt be considered rental income and Marys expenditure shouldnt be considered as rent paid unless they had a 50/50 mortgage instead of joint)that would allow each to continue to own a share in the property without disadvantaging one or the other. I dont know anyone who is doing it is practice but came across it as a suggestion and decided this is what I would do in the situation.

Mary and Liz could simply agree to pay €1075 and €425 to the mortgage with joint ownership and the property would be Mary's PPR.

If you were to formalise things in terms of Mary having tenant rights I believe there may be some tax issues and a solicitor would be best to go through it.


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