# Can I walk away from mortgage on investment property?



## kerokero (18 Feb 2009)

My partner bought four investment properties on an interest only basis. Unfortunately he has become seriously ill from stress and has been hospitalised for this condition for four months now.

The properties are secured against themselves, not the family home. At present they are all let but the rent doesn't cover the repayments, which is OK now but if he continues to be unwell his salary will be affected. 

Is it possible to walk away from these investments or ask for a moratorium if his condition doesn't improve?

Any suggestions welcome, thanks.


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## murphaph (18 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

It's a popular misconception that a mortgage secured on property B cannot result in a bank seeking a sale of property A to pay debts. It's unlikely but not impossible however to go after the family home in such circumstances, especially in the current climate. Your partner owes the bank the outstanding mortgage amounts so the bank will want this money repaying even if the properties are worth less than the mortgage. You could 'walk away' (though better to do things properly) if the value of the properties exceeds the outstanding mortgages but the bank would then deduct their legal expenses as well as the outstanding mortgage from the proceeds of sale. If you want to offload the properties, better to do it yourself.

Approaching the bank with the situation is DEFINITELY the first thing to do. They need to know you are having difficulty or they can do nothing to help you. In the current climate, banks (I presume a major lender and not subprime?) won't move too quickly to force a sale but will eventually if you default. 

Really sorry for your troubles, not easy.


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## kerokero (18 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Many thanks for that information and I appreciate your taking the time.

As everything is rolling over at present I guess I don't have to approach the banks (BofI and KBC) until such time as his employer reduces/stops his salary.

One of the loans is due to roll over from interest only to capital from June 09, which will add another 2.5k pm. Should I approach them now or in a couple of months to request an extension of the interest only for another year and do I put my cards on the table? The loans were secured in joint names (but that's another story as I never signed in front of a solicitor) so I am also liable legally.

Sorry for seeming so ignorant but I have had a very steep learning curve due to these unforeseen circumstances.


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## murphaph (18 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Approach the banks now. Don't leave it to the last minute. Explain the circumstances and outline your request to extend the interest only option. Do you know what the houses are really worth and each outstanding mortgage? You should find this out to see which ones (if any) will allow you to sell up and clear the mortgages and there might be a bit left over to help tide the remaining lossmaking one(s). Request up to date mortgage statements from all the banks tomorrow to see where you stand and possibly get a quote from some valuers about getting realistic valuations done.


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## kerokero (18 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Thank you.

In addition to the interest only loans he had 3 small mortgages using the family house as security. To relieve some of this stress I approached the Credit Union who have passed a loan so that I can clear these small loans with the bank in order to secure the family home. The money he had been paying to the bank on these 3 loans will now be paid to the C.U.

The apartments are in a very good location but obviously have dropped in value considerably. As they are 1-bed penthouse apts I think they should get a fairly decent price once the first time buyers get going again so probably worth holding on to for the present. Your advice about getting realistic valuations is welcome.

One of the apts is in his name only so I think I would probably have to get Power of Attorney to sell.  I don't think this is possible if a person isn't fully compos mentis.


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## zxcvbnm (18 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

You should definitely have little difficulty in extending teh interest only periods for these.

In this climate it is very much a case of going to teh bank telling them you are extending the interest only period as opposed to asking them.
They will most likely be happy to go along with this arrangement.


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## kerokero (19 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Many thanks, will do that.


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## ontour (19 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Do you know if there was payment protection insurance taken out on the mortgages?

Were the properties purchased in the last few years? Are the mortgages likely to be less than the loans?  It might be worth talking to local estate agents to get a guide of expected selling price.

If the rent is not covering the loans, have you planned for management fees and other expenses?


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## kerokero (19 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

No mortgage protection taken out unfortunately
Properties purchased in 2004 and 2006, will speak with estate agent - the letting agent advises me that nothing selling there just at the moment.
Including management fees, insurance, VAT on rent its costing about 18,000k a year just to keep them ticking over


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## ontour (19 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Given the timing of the purchase of the properties, it is unlikely that sale price would cover the mortgage and costs in the short term unless you had paid down significant deposits on the properties.

Anecdotally, one bedroom apartments have been hit worse than 2/3 bed apartments as they are seen as having a short term fit to lifestyle for most people.  I also recently looked at penthouse property prices and IMHO believe that they are not as good a financial investment as the price comes closer to that of a a house purchase, they have more competition and they often incurr a heavy management fee weighting.  From a lifestyle perspective, I highly recommend penthouse living but that is not what you bought them for.

It is advisable to talk to the bank but I would recommend that you sit down and do the 'financial planning' first.  Document your current financial position with current earnings and outgoings and then amend this to reflect the potential loss if earnings and any potential reductions in expenditure.  Factor in any benefits that could be claimed.

This will allow you to understand what you can afford and what the options are.  It will help you to understand how long you can fund the costs of the properties from earnings and savings.  You can then approach the bank with a better understanding of what you need and demonstrate that you are managing the situation.

Going through this financial planning and talking to the bank is scary and stressful, but fear of the unknown is even more stressful so it is in your best interest to do this now.  Good luck.


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## kerokero (19 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Thank you.

No significant deposits - he basically borrowed to the hilt and registered for VAT to reduce the price.

I had to document expenses etc for Credit Union before they passed the loan. As he is due to retire within the next couple of years his earnings will obviously be significantly reduced.

I have been to Citizens Advice who basically told me that all I would be leaving to my children would be debts, that I had no hope of clearing debts in my lifetime (I am early 60s and hope to be hanging around for a while, have a government job) and asked the question "What will you do in 10-15 yrs time when you need a nursing home?"  That really knocked me for six!

I suppose its just a waiting game to ride the storm for a couple of years, extend the interest only period on the one due to expire this year, and see what happens, all the time keeping an eye on sales in the development (they are all in the same development).


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## VOR (20 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Kerokero, I am sorry to hear about your situation. 

Your last line above is troubling. As all units are in the one development you are in a more difficult position. Even if you wanted to sell all 4 units, it would be unwise to dump them on to the market together. 
As said before, you really need to speak to an estate agent and find out what the 4 are worth. Ask for a free market appraisal from a couple of agents. 
You should then look at who your tenants are and their tenure. Is there a risk that they will leave?? Perhaps they are foreign nationals thinking of going home. Research Daft.ie and ask the EA what the current monthly rentals are in your development. Are you getting higher than this and what would happen if your tenants left?
As Murphaph said, you need to find out exactly which units have the most equity so get statements from the banks and cross-reference with the EA valuations. 
And, please talk to the banks as soon as possible. It is best to go to them with the above informtaion and lay it all on the table. If you have some equity and good tenants paying a realistic rent, you should find the banks to be flexible. 
If I were you, I would then test the water with one unit and see if it will sell. 
Best of luck.

One more thing I forgot - You said the "properties are secured against themselves". Are they cross-charged or stand-alone. Can you sell one and get the equity from it or will the overall debt obligation swallow this money up also?


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## kerokero (20 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Hi Vor

The properties are stand alone. Yes they are being rented out by foreign nationals, one of whom has already asked for a rent reduction (granted). All are on 1-yr tenancies, first one to run out in May. Thank you for your advice, much appreciated. Have already been on to one of the banks and they have agreed verbally that they will offer a further extension of 6 months on interest only (the i.o. loan due to expire in June presently), to be reviewed further if necessary. The others have a few more years to run on i.o. I am to write to them in April, as they tell me there's no point in doing it now as they wouldn't be dealing with it until then.


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## dereko1969 (20 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

as your partner is registered for VAT make sure that the VAT returns are being sent in, as you don't want Revenue on your case as well. best of luck.


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## kerokero (21 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Thanks Derek, a family friend has been doing that for me.


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## McGrath (21 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

If you're thinking about selling one, bear in mind that you may have to charge VAT, unless you de-register from VAT before the sale.

If you de-register from VAT before selling, then you are likely to have to give Revenue a balancing payment of the difference between the VAT claimed back on the purchase of the properties and the VAT paid on the rents since.

Factor all of this into your calculations.


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## kerokero (22 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

McGrath, thank you for that.  I didn't know that the accumulated VAT paid on the rent would be taken into consideration when a property is sold.  I had been under the impression that VAT would be payable on the selling price at a rate of 13%.


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## McGrath (22 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

Sorry - i should clarify: if you remain registered for VAT before selling, then VAT is indeed payable on the entire selling price at 13.5%.

If you deregister from VAT before selling, then there is no VAT on the sale itself. However, before de-registering you will have to make a balancing payment to Revenue of the VAT claimed on purchase that hasn't been paid back through VAT on rents.


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## kerokero (22 Feb 2009)

*Re: Can I walk away from Interest Only Investment?*

McGrath - thanks for that clarification.  I am truly grateful for any advice and thank all the posters here.  It saves such a lot of time trawling through websites and documents and helps to get everything straight in my mind.


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## Arch2 (23 Feb 2009)

As the properties have fallen in value if selling you should consider charging the VAT on the sale as this may well be less than returning the VAT claimeed to the revenue.


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## kerokero (23 Feb 2009)

That's a very good point Arch2, thank you.


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