Advice - Messy ownership situation

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heather

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Hi all,

Around 8 years ago my wife bought a property with her brother. Mortgage is split 50/50. They lived in the house for 3-4 years, we then got married and bought another property, as did the brother.

The house has been rented out for a couple of years, here's he kicker though. There is a significant shortfall between the rent, mgmt fees etc against the mortgage (c. €500). The brother is barely making ends meet while we both have good jobs. We have been meeting the shortfall in the meantime but cannot sustain it as we're not able to put any money away.

We would like to sell the property and would like to know:
Given we both earn good money will the bank load us with all the debt? I'm happy to take on our share but cannot stomach what I see as paying his way for several years to come. Moving into the property is not an option for us as we live in a different county and need to be here for work etc. we would like to buy here eventually.

Our other property is rented and we have no issues with it.

Any advice?
 
Assuming her and her brother are still on amicable terms, I'd try to get some sort of contract drawn up.

Is the house in negative equity and what is your opinion on the future direction of prices (that's not allowed to be discussed here but, rather, is a question to ask yourself).

If you sell, you'll have selling fees, a house that will possibly be empty whilst being sold (due to the possible difficulty in selling a tenanted property - I'm not too sure what the legalities around this are). If her brother can't even make up half of the rent shortfall, you are likely to be left paying these costs.

If you get an agreement drawn up, it could be something along the lines of setting up direct debits from both your accounts to the mortgage account and the extra you pay comes out of the eventual sale proceeds before the rest of the funds are split evenly. A solicitor would know better how these types of agreements usually work.

The big problem here is that, whilst you may think that the mortgage is split 50/50, it's usually not. Your wife and her brother will both be jointly liable for the mortgage. That means that, should he lose his job and be unable to pay anything, the bank can repossess and chase you for the FULL shortfall. For that reason, you should try to get an agreement drawn up but thread lightly and don't fall out if he doesn't 'play ball' with this idea.
 
Hi Heather

You need to give the actual figures involved to get proper suggestions.

Value of property
Mortgage amount outstanding
Interest rate and type e.g. tracker ecb + 1%
Lender
Term remaining
Rent
Monthly repayments
Other expenses

In most cases, the rent is actually covering the interest, so the investment is not losing money on a revenue vs. cost basis. If this is the case, it's probably worth holding onto the investment. The capital element of the payment is a form of "putting money away"


The excess payments you are making would be reflected in either a higher proportion of ownership or a loan to your BIL.

You may also find this post helpful

A guide to splitting up while in negative equity
 
Value of property approx 170k
Mortgage amount outstanding 211k
Interest rate and type standard variable 4.34%
Lender PTSB
Term remaining 21 years
Rent €1000
Monthly repayments €1100
Other expenses Mgmt fees backdated for several years - €300 pm. General expense budget €100 per month.

They're on quite good terms but when we bring up the property he automatically goes on the defensive, no spare cash etc. both are in full time employment but salaries would e quite low compared to ours.

Interesting points above, so if my wife was out of work what would happen? Could they come after my salary? Either way I'd be delighted to sell it and would be happy to make up half the shortfall but would find it hard to stomach picking up both sides of the tab. The ultimate goal is for us to buy a property where we live now so perhaps they might consider rolling our half of the shortfall into a new mortgage. Thanks for the advice above
 
Hi Heather

This looks to me to be a break-even investment.

Rental income| €12,000
Interest|€9,000
Mgt fees|€2,000
Other expenses|€1,000

So, if you could get this to interest only, then your rental income would be covering the outgoings, leaving tax aside for one moment.

Assuming that they don't allow you to switch to interest only...

You are repaying around €4,000 capital a year. This will rise gradually over the coming years. This will clear the negative equity - the timing depends on whether house prices increase or fall from their current levels.

The problem is that you are making up this shortfall. How should this be accounted for?

At it's simplest level, you need to keep a running account.

|paid by sister|paid by brother
Jan 2011|€4,000|
Feb 20111||€3,000
Jan 2012|€600|€600
March 2012|€2,000|
Cumulative|€6,000|€3,600

This will be cleared at some stage in the future by :

Brother putting €2,4000 into the account
Brother paying sister €1,200
Sister taking €2,400 out of account (probably when the property is eventually sold)

From your description, it will be a long time before this is resolved and so the account really just serves the purpose of the brother knowing how much he owes.

At some stage, when the amount owing by the brother is huge and the negative equity is close to being wiped out, you might do a deal with your brother to buy his share in the property. But that is a long way off. The main thing to do now is to make sure you keep a good account of the money spent.
 
heather said:
Interesting points above, so if my wife was out of work what would happen? Could they come after my salary? Either way I'd be delighted to sell it and would be happy to make up half the shortfall but would find it hard to stomach picking up both sides of the tab. The ultimate goal is for us to buy a property where we live now so perhaps they might consider rolling our half of the shortfall into a new mortgage. Thanks for the advice above
Click to expand...

Your wife's liabilities are separate from yours, unless you have a contractually joint liability e.g. a mortgage where both your names are on it.

If your wife is unable to pay her mortgage with her brother, or any of her other liabilities, you are not responsible for them. In theory, the lender could come after any assets you and she own jointly. I presume you are in negative equity on the home you and your wife own together?

However, from a practical point of view, you may want to keep your wife's credit rating clean.
 
Thanks Brendan. The ideal resolution would be to sell it as we live so far away maintenance is becoming an issue, along with the fact that we are unlikely to get a second mortgage these days but a third for the wife is probably nigh on impossible.

The apartment we bought together is also in negative equity by substantially more than this one
 
Hi heather

You should ask the bank if they will allow you to sell it and split the negative equity. I doubt that they will, but there is no harm in asking.

If your wife already has two mortgages in negative equity, she is overborrowed and should put all ideas of buying another property out of her head for some time.

Brendan
 
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