# How to deal with negative equity following unemployment and relationship breakup



## Carolina (17 May 2010)

A friend of mine bought property with gf for 350K. He is now unemployed. Property now worth 150K. He is a building labourer. Gf works in a shop.

They have made all payments to date but the mortgage is interest only and reverting to repayment in the summer. 

He is renting out the property for 900. Repayments have been 1400 but rising to 1700 in summer. He needs to stay unemployed for a year so he can qualify for a grant to return to third level education this autumn. 

His gf may emigrate at any time and leave him liable for all the debt.

He tells me he now intends to default.

Is there a better option?

Is there any chance the lender would agree to some voluntary arrangement including some debt forgiveness rather than suing and getting nothing but the property and incurring legal costs?

Does he have to stop payments in order for the lender to consider his case?


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## csirl (17 May 2010)

I know property has dropped a lot in value, but 350k to 150k is a lot larger than the typical drop? Are there any reasons for this?



> He needs to stay unemployed for a year so he can qualify for a grant to return to third level education this autumn.


 
As he has financial responsibilities, he would be better looking for a job to clear his debts than going on the dole for a year.


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## Carolina (18 May 2010)

csirl said:


> I know property has dropped a lot in value, but 350k to 150k is a lot larger than the typical drop? Are there any reasons for this?


1 bed apt in Dublin bought at the absolute peak. It's a large development with many more new units since completed and many now being sold by the council under affordable housing.



> As he has financial responsibilities, he would be better looking for a job to clear his debts than going on the dole for a year.


As he is unskilled, he now wants to get some education to be able to do a fulfilling and well paid job. He has 3 months left being unemployed to qualify for back to education allowance. He has managed to make the payments to date by using savings and selling possessions, moving back with parents and renting out the apt.

He accepts culpability for this situation but is potentially facing a 200K shortfall. Any advice on what he should do? I think he has done well so far to maintain payments. 

He is 25.


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## truthseeker (18 May 2010)

Op - How is he facing a 200K shortfall? Is the gf not liable for 100k of this?

About her deciding to emigrate - half is still her financial responsibility, not his, and emigrating wont change that.

I dont understand the logic behind waiting for BTEA - why is he not looking for a job and studying in the evenings? Has he done any kind of study in the past 9 months? If not, why not? Even if he gets BTEA - the applications for college may mean that he is too late to apply until next years round of applications. Would he even qualify - there are far more people applying for 3rd level places as a result of the recession.

He clearly cant afford to be in college exclusively for the next few years, its irresponsible of him to choose this option. There is nothing stopping him bringing his education up to a higher level part time and at his own cost (if he got any job) to get him a better job later on.


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## idkwatmi (18 May 2010)

truthseeker said:


> Op - How is he facing a 200K shortfall? Is the gf not liable for 100k of this?
> 
> About her deciding to emigrate - half is still her financial responsibility, not his, and emigrating wont change that.
> 
> ...



My thoughts exactly. If he bought with his GF well then she is just as much responsible for whatever shortfall there maybe. I admire his ambition to get qualifications but now perhaps is not the time.


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## Carolina (18 May 2010)

truthseeker said:


> Op - How is he facing a 200K shortfall? Is the gf not liable for 100k of this?


I think the phrase is 'jointly and severally liable'. In other words, he owes her share if she can't come up with the money and vice versa. Standard on an irish mortgage, I believe.



> About her deciding to emigrate - half is still her financial responsibility, not his, and emigrating wont change that.


He could sue her for her half but only if he knows where she is and can afford the legal costs of an international lawsuit.



> I dont understand the logic behind waiting for BTEA - why is he not looking for a job and studying in the evenings?


He can't get a job or he will be disqualified from BTEA.  





> Has he done any kind of study in the past 9 months? If not, why not?


Yes he has been studying.   





> Even if he gets BTEA - the applications for college may mean that he is too late to apply until next years round of applications. Would he even qualify - there are far more people applying for 3rd level places as a result of the recession.


I believe he has a place but I'm not sure. 



> He clearly cant afford to be in college exclusively for the next few years, its irresponsible of him to choose this option. There is nothing stopping him bringing his education up to a higher level part time and at his own cost (if he got any job) to get him a better job later on.


He can't afford to pay his mortgage from the earnings of the kind of minimum wage job he is qualified to perform. 

What would you do in his situation?

------edit-------
Just realised that truthseeker is asking why he wants BTEA rather than just getting a job and doing college by night. I presume the answer here is that doing a course by day is far easier than attempting to do it by night while working. There is also a narrower range of degrees by night. The dole pays 196 a week, whereas a fulltime job in spar might only pay 100 euro more.


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## 95a (18 May 2010)

The bank won't forgive any of the debt but they may continue to accept the rent and restructure the payments, this isn't a long term solution though.  

They also might consider allowing the sale of the property and converting the shortfall to an unsecured debt.  however with a €200K shortfall this might be a stretch.

While not very ethical, the best solution might be for him to emigrate and ignore the mortgage.  If a borrower gives no acknowledgment of a debt for a period of 6 years - i.e. makes no payments and has no contact with the bank - they are statute barred from taking legal action.  While in that time they'll have probably repossessed the house at least they can't sue for the shortfall.  It would take at least year for legal action to begin so he could continue to collect the rent for quite some time.


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## PaddyBloggit (19 May 2010)

_" If a borrower gives no acknowledgment of a debt for a period of 6 years  - i.e. makes no payments and has no contact with the bank - they are  statute barred from taking legal action.

While in that time they'll  have probably repossessed the house at least they can't sue for the  shortfall.  It would take at least year for legal action to begin so he  could continue to collect the rent for quite some time."_ 

Is this true?


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## Carolina (19 May 2010)

If the bank accepted the just the rent for 4 years, the he could start paying back the capital when he finished college from his future high paying job. 

I'm not saying it's untrue but I find the 6 year story hard to believe. If this were true wouldn't everyone do it?


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## fizzelina (19 May 2010)

Carolina said:


> If the bank accepted the just the rent for 4 years, the he could start paying back the capital when he finished college *from his future high paying job.*
> 
> I'm not saying it's untrue but I find the 6 year story hard to believe. If this were true wouldn't everyone do it?


 
From his future high paying job? I am aware of many graduates without high paying jobs and I certainly would not assume he is going to come out of a college course into a high paying job to be honest Carolina. What course does he plan to do? Is there still employment in that area?
And yes where did that 6 year story come from, first post of the guy too, does he defo mean that's the case in Ireland?


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## truthseeker (19 May 2010)

Carolina said:


> If the bank accepted the just the rent for 4 years, the he could start paying back the capital when he finished college from his future high paying job.


 
Thats not a realistic option. His future high paying job might not materialise for a long time. Plus, graduates straight out of college with no experience tend to be on very low money (not much more than minimum wage) for the first few years until they have experience in the field.

In addition, a lot of high paying jobs have taken pay cuts and/or been handing out redundancies, so theyre not as high paying as they once were if they even exist anymore, so he will be up against people with a good qualification and experience in the field who are willing to work for less than they were a few years ago.

What is he planning to study? Is it something that would give him a good chance in the job market?


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## Sunny (19 May 2010)

95a said:


> While not very ethical, the best solution might be for him to emigrate and ignore the mortgage. If a borrower gives no acknowledgment of a debt for a period of 6 years - i.e. makes no payments and has no contact with the bank - they are statute barred from taking legal action. While in that time they'll have probably repossessed the house at least they can't sue for the shortfall. It would take at least year for legal action to begin so he could continue to collect the rent for quite some time.


 
Don't even consider following this advice.


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## Carolina (19 May 2010)

I don't want to reveal the job but it is state sector & has plenty of openings and starts on 33K, increasing each year up to 47K after 10 yrs (not so high paying!) There are promotion possibilities.

The gf defaulting is worst case and she may continue to pay.


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## 95a (19 May 2010)

_*39.—At the expiration of the period fixed by this Act for a mortgagee or chargeant to bring an action to recover a principal sum of money secured by a mortgage or charge on personal property (other than a ship), the right of the mortgagee or chargeant to the principal sum and interest shall be extinguished.
*_irishstatutebook.ie/1957/en/act/pub/0006/sec0039.html#zza6y1957s39

I can't say I'd recommend it 'cause I wouldn't do it myself.  I'm just saying that depending on one's circumstances it could be preferable to being saddled with such extreme negative equity.


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## csirl (20 May 2010)

> The dole pays 196 a week, whereas a fulltime job in spar might only pay 100 euro more.


 
100 per week extra working in Spar = 5,200 per annum
900 per month rent = 10,800
TOTAL = 16,000

Mortgage = 1,700 per month = 20,400 per annum.

The gap between the 2 is only 4,400 per annum. Close enough that any bank would be interested in doing deal to either lengthen the term, have a payment break or convert to interest only (1,700p/m suggested repayments are capital + interest).

So the working in Spar option is very realistic. 

There is a big danger that the Courts may take a view that your friend is capable of coming to a very realistic arrangement with the banks, but is not facing up to his responsibilities.


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## fobs (20 May 2010)

I have heard the advice to emigrate and ignore your debt before. i wonder in this case would it indeed suit the person in this situation as he an no longer afford the property and has no chance of ever being in a position to pay off the loan. I think some solution to this will have to be found as at the moment what is the way out of this situation for the person i.e. how would they ever repay the 200,000 in the worst case scenario?


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## newkid30 (20 May 2010)

Carolina said:


> I don't want to reveal the job but it is state sector & has plenty of openings and starts on 33K, increasing each year up to 47K after 10 yrs (not so high paying!) There are promotion possibilities.
> 
> The gf defaulting is worst case and she may continue to pay.


 I am REALLY curious as to what area he is going to be studying in? I update advertisments on a Public Service website, and I can tell you there, are very few jobs advertised regularly, those that are advertised, receive huge volumes of applications, many by people with qualifications above and beyond what's required, a bare graduate has NO hope until they get some kind of experience or do a postgrad being honest!!

Also though new jobs are coming online, public sector managers have to go through reems of red tape to get the go ahead to recruit somebody new.  As regards the pay scales, the tax clawback far outweighs incremements at the moment.  

He should just work and study in the evening, there are very few degrees now adays that you can't do part time.


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## Carolina (21 May 2010)

csirl said:


> The gap between the 2 is only 4,400 per annum. Close enough that any bank would be interested in doing deal to either lengthen the term, have a payment break or convert to interest only (1,700p/m suggested repayments are capital + interest).
> 
> So the working in Spar option is very realistic.


Thanks, I hadn't even considered that. The term is 30yrs already so not much room for reduction. Interest only doesn't pay off any debt and it only makes sense where you expect to have an income rise in future.  



> There is a big danger that the Courts may take a view that your friend is capable of coming to a very realistic arrangement with the banks, but is not facing up to his responsibilities.


I wonder how the courts would treat him if he went to college for 4 yrs full time and just paid whatever he could. Short of locking him up, they can't do much to him. Do you get locked up for failing to pay all your mortgage on time? 



fobs said:


> I have heard the advice to emigrate and ignore your debt before. i wonder in this case would it indeed suit the person in this situation as he an no longer afford the property and has no chance of ever being in a position to pay off the loan. I think some solution to this will have to be found as at the moment what is the way out of this situation for the person i.e. how would they ever repay the 200,000 in the worst case scenario?


I don't think he wants to emigrate given that his friends and family are here. Also I suspect that while it may have worked in he past that in a more modern world, people won't be able to hide from their debts in this way.



newkid30 said:


> I am REALLY curious as to what area he is going to be studying in? I update advertisments on a Public Service website, and I can tell you there, are very few jobs advertised regularly, those that are advertised, receive huge volumes of applications, many by people with qualifications above and beyond what's required, a bare graduate has NO hope until they get some kind of experience or do a postgrad being honest!!


OK, you'd probably know better than most.  We are talking about 4 yrs time of course.

I am wondering what you would do in his place? He is very capable but with no 3rd level education facing into very large debts. He is dependent on his parents (who supported his original decision to buy).


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## truthseeker (21 May 2010)

Carolina said:


> I am wondering what you would do in his place?


 
If I was in his position, Id keep renting it out. Id look for a job, any job and study part time. Id continue to pay my half of whats left after rent has been paid and Id expect ex GF to keep paying her half also. 

Id be looking at all of this as a temporary plan, so at some point in the future Id have a better job (either through re-education or progression in whatever job I get). 

Obviously all this works only if I can get a job. If I couldnt get a job Id go and talk to the bank and see could I pay less until I could get a job.

Id forget about full time education for the immediate future.


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## Kine (21 May 2010)

Full-time education also has some large costs associated with it.

Fees, books, laptop, travel etc....it ain't exactly free wither.


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## Carolina (21 May 2010)

truthseeker said:


> If I was in his position, Id keep renting it out. Id look for a job, any job and study part time. Id continue to pay my half of whats left after rent has been paid and Id expect ex GF to keep paying her half also.
> 
> Id be looking at all of this as a temporary plan, so at some point in the future Id have a better job (either through re-education or progression in whatever job I get).
> 
> ...


OK thanks for that. I know there are downsides to every approach so I wanted to know what someone would do in his place. 

He has to have some kind of plan to get rid of this debt: he could spend his whole life just paying the interest on the loan (17.5k/year) and never have any money or every pay off the capital. Debt slavery. Also there is the problem of irregular income. Minimum wage workers often find their hours reduced or that they are laid off when times are slack. Not good when you are living on a knife-edge.



Kine said:


> Full-time education also has some large costs associated with it.
> 
> Fees, books, laptop, travel etc....it ain't exactly free wither.


Not being educated is even more expensive. I would consider this is the kind of expense that he could reasonably ask his parents to pay.

After reading all this I am going to encourage him to go for the full time option with BTEA and get weekend & summer jobs to make a little extra cash. I don't think that full time working for min wage while studying at night is a better option. I once taught a night degree course and the students looked like zombies every evening for their 3-hour sessions. As a full timer with BTEA, he would only have to earn 100/week to get his income up to the level that a full time job would pay. So he could work on the weekend and have the whole week devoted to his course. I think this reduces the risk of dropout from stress.

Since originally posting, I have learnt that his place on the course is not yet secure and it seems that applications for 3rd level have massively increased on last year. Also, I have found out that he is paying his parents a near market rate for renting a room from them. I might have a chat with them about this.

I'm going to close the thread unless anyone has any further suggestions and thanks for the advice so far.


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## Complainer (21 May 2010)

truthseeker said:


> If I was in his position, Id keep renting it out. Id look for a job, any job and study part time. Id continue to pay my half of whats left after rent has been paid and Id expect ex GF to keep paying her half also.
> 
> Id be looking at all of this as a temporary plan, so at some point in the future Id have a better job (either through re-education or progression in whatever job I get).
> 
> ...



In general, I'm a very by-the-book kind-of guy, and I generally play by the rules. However, in this case (and the many other similar cases), it is unreasonable to expect the guy in question to play by the rules. 

You just can't start off your working life saddled with a €200k debt, when your only sin was to buy a basic apaprtment to live in at the peak of the market. There has to be a better solution, though I've no idea what it is. 

Without such a solution, these guys are going to be gone to Oz or Canada, and will never come back.


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## truthseeker (21 May 2010)

Just a quick pov on the previous posts.

Yes - it is unfair that the guy is saddled with such debt at the start of his working life, but lets get some perspective here.

First of all - that debt is shared, he only 'owns' 100k of it.

Second, if he continues to make mortgage repayments, eventually it will come round to a point that the apartment can be sold and cover the outstanding amount left on the mortgage.

At the end of the day he still has an asset here. It may not be worth much now and he may owe the max now, but in time the amount he owes will be lower and hopefully the apartment will come up in value at some stage also. Im talking possibly 15 years down the line - at which point he will only be 40 - so its not like its the whole rest of his life we're talking about.

Ultimately no one forced him to buy, no one forced him to buy with a GF who is now possibly unreliable, and he made these decisions himself as a matter of choice. So there has to be some personal responsibility as well.

Op - there are other options to night time degree courses. Im currently doing a degree with the University of London in my own time, and there are no classes to attend, nor assignments to hand up etc... You follow the coursework in your own time over the year and do exams in May. It requires discipline to cover the coursework in your own time, more so than if you were attending classes. But there is no zombie element at all.
So just be aware there are other options - Open University is also flexible in this manner.

Its a luxury to go back to full time education as an adult, most people cannot afford to do it fulltime - even without the issue of the massive negative equity.


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## csirl (21 May 2010)

> I wonder how the courts would treat him if he went to college for 4 yrs full time and just paid whatever he could. Short of locking him up, they can't do much to him. Do you get locked up for failing to pay all your mortgage on time?


 
You dont get locked up for failing to pay all your mortgage. But you can get locked up if, after consideration of all the facts, the courts decided that he does have the ability to pay off some of the debt and issues a court order to that effect and he doesnt adhere to the order without reason. Giving up work to go to college would not be seen as a valid reason not to pay.


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## Carolina (21 May 2010)

truthseeker said:


> First of all - that debt is shared, he only 'owns' 100k of it.


He is liable for her half is she defaults. His only comeback would be to sue her which is useless if she is broke or unreachable.



> At the end of the day he still has an asset here. It may not be worth much now and he may owe the max now, but in time the amount he owes will be lower and hopefully the apartment will come up in value at some stage also. Im talking possibly 15 years down the line - at which point he will only be 40 - so its not like its the whole rest of his life we're talking about.


Keep hoping for that LTEV! If prices flatten out now, and he makes full payments then I think he will have paid off the negative equity by 2031. He will be 46.



> Ultimately no one forced him to buy, no one forced him to buy with a GF who is now possibly unreliable, and he made these decisions himself as a matter of choice. So there has to be some personal responsibility as well.


He is taking full responsibility for his choice.

He and gf were on 85K when they took out the mortgage 100%, interest only. It seemed reasonable to them at the time and they were just kids getting on the ladder. I think they're on 5% fixed so they didn't even get a tracker. I feel more sympathy for him than he does for himself.



> Op - there are other options to night time degree courses. Im currently doing a degree with the University of London in my own time, and there are no classes to attend, nor assignments to hand up etc... You follow the coursework in your own time over the year and do exams in May. It requires discipline to cover the coursework in your own time, more so than if you were attending classes. But there is no zombie element at all.
> So just be aware there are other options - Open University is also flexible in this manner.


 Point taken.



> Its a luxury to go back to full time education as an adult, most people cannot afford to do it fulltime - even without the issue of the massive negative equity.


I don't think he would be financially better off in part time education w/ full time work.



csirl said:


> You dont get locked up for failing to pay all your mortgage. But you can get locked up if, after consideration of all the facts, the courts decided that he does have the ability to pay off some of the debt and issues a court order to that effect and he doesnt adhere to the order without reason. Giving up work to go to college would not be seen as a valid reason not to pay.


But he hasn't given up work, he is long term unemployed returning to college (although in truth he chose unemployment to get the grant).



Complainer said:


> Without such a solution, these guys are going to be gone to Oz or Canada, and will never come back.


I would imagine there will be a lot of irish people fleeing negative equity abroad. I recently met an aussie who had fled his debts at home so it works both ways.


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## UptheDeise (21 May 2010)

Am I missing something here? Is this an investment property we are talking about?


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## Carolina (21 May 2010)

nope it's residential but he has now moved out and rented it out


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## lady (24 May 2010)

Carolina said:


> He is taking full responsibility for his choice.


 
If that was true he would be doing everything in his power to get a job and pay his debt. Its people like him who decided not to pay their debts that led to the recession in the first place... well partly. 
I have alot of sympathy for people who lose their jobs and find themselves in negative equity but you've admitted that he hasn't even tried to find another job!

You've gotten alot of great advice here put you choose to ignore it. Why bother posting??

I know alot of people (and i do mean alot) who worked full time while attending part time education and they have done very well for themselves - working their way up the company ladder. Fact is there are scores of college graduates who can't find jobs. Even at the hight of the boom I met a taxi driver who was very bitter about the fact he had a college education but was reduced to driving a cab thru lack of jobs.

At the end of the day this debt isn't gonna go away and he simply cannot afford to go to college full-time write now.


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## Carolina (25 May 2010)

lady said:


> If that was true he would be doing everything in his power to get a job and pay his debt.


Retraining may be a better long term plan for paying back debt.  


> Its people like him who decided not to pay their debts that led to the recession in the first place... well partly.


 Everyone is partly responsible: consumers who overborrowed, banks who overlent, regulators and politcians who chose poor policies, an electorate who chose this system.



> I have alot of sympathy for people who lose their jobs and find themselves in negative equity but you've admitted that he hasn't even tried to find another job!


Yes, he has strategically chosen 1 yrs unemployment to qualify for BTEA (3rd person I have come across on this game)



> You've gotten alot of great advice here put you choose to ignore it. Why bother posting??


I really appreciate the advice I have received in this thread and I hope it is of use to other readers. I don't think any of the suggestions I have seen so far is better than fulltime education + part time work. However I will do my best to ensure he comes to deal with his creditors and not just ignore them.

Other suggestions in this thread have included: working for min wage full time and studying at night, getting an extended period of interest only, emigrating and hiding. 



> I know alot of people (and i do mean alot) who worked full time while attending part time education and they have done very well for themselves - working their way up the company ladder. Fact is there are scores of college graduates who can't find jobs. Even at the hight of the boom I met a taxi driver who was very bitter about the fact he had a college education but was reduced to driving a cab thru lack of jobs.


My experience from teaching 3rd level is that there are many students who should not be there because their 2nd level education is insufficient or because they don't have the mental ability. With grade inflation, there is a stream of qualified but ineffective people from a much broader range of colleges. As an employer I avoid these people like the plague.

My mate by contrast has a big brain and plenty of motivation and should have gone to college years ago.



> At the end of the day this debt isn't gonna go away and he simply cannot afford to go to college full-time write now.


My conclusion from this thread is that the main choice is between 
a) full time low wage job + part time education or 
b) part time work + full time education
as (b) is funded by the state at 200/week and will probably lead to him completing college faster and with a better quality of degree, I would advise (b). Hope he gets a place now.

If there are no jobs in 4 yrs time in Ireland, he can consider a period of emigration then.
--edit--

I am going to close this thread now with thanks to all contributors


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