Does profit on sale of property have to be paid against another?

M

MaxedOut

Registered User
Messages
10
So here's the scenario, posted on behalf of my bro. He is renting a place to live himself but has two places rented out. The first, let's call it A, has small mortgage of maybe €60000. Second, let's call it B, has a big mortgage of over €200000 and is in neg equity. Up to recently, he was paying both no prob, but B was set up as an interest only repayment and he thought there were five to ten years interest only left on that still but apparently not, and now the bank are looking for over €1000 a month on B, which bro can't manage. Bank is reviewing it but taking their time (there've been probs with A in regards to getting good tenants, despite major rent drops, and lots of damage having to be fixed after each tenancy so even though mortgage low, it's eating up the cash too).

ok so the question is, in theory, if he tries to sell A) and has money over after clearing the mortgage on it, does the bank have a hold on/claim over that money in relation to mortgage B), say if it was a case he went into arrears for a month or so pending the re-negotiation of B) with the bank?

Hope it's not been confusing. Any help/comments welcome.
 
Ooh I'm not sure. How would one know if it was? I know he's had A a lot longer cos he used to live in it before having to move somewhere else and B was bought later. He prob gave details on A on the application form for the B mortgage, but what else would say that it's cross-secured?
 
It would be on the loan offer for B or solicitor would know. If he borrowed the full cost of B it is likely the bank included the security of A as well.
 
Defo didn't borrow the full cost, if I remember correctly, the purchase price was 260000 and he might've got a mortgage for about 210000.
So if it wasn't cross-secured on A, that means the bank has no claim on money that might come from sale of A?

Also, he wants to get back to an even keel on paying the B mortgage, so what do you think the chances are of the bank facilitating this, ie putting him back on interest only or adding more years to mortgage?
 
If his figures show that he cannot pay the capital and interest figures then the bank might agree, he will probably need to do up a budget sheet showing income and outgoings, however if this contains what the bank considers luxuries e.g. dearest sky package etc, then they will expect him to cut his living costs first before they will play ball.

As to whether the bank has a claim on the sale proceeds of A, it would be more difficult for them if it was not cross secured but there is also something called an 'all sums due mortgage' which might change things if this is what he has. Might be worth checking with his solicitor.
 
You need to provide the figures on all three properties - values and mortgage outstanding.

His mortgages are all full recourse mortgages. In other words, if he sells one property for less than amount outstanding on the mortgage, he owes the balance.

If he generates a surplus on the sale of a property, he should use that to make sure he does not fall behind on the other property. He is not legally obliged to reduce the mortgage which is in difficulty, but then the bank will not facilitate him if he squanders the money.

If he has a mortgage on his home, he should use the surplus to repay this first, as he gets no tax relief on the interest on this mortgage.
 

Well there's only two properties at issue and he doesn't live in either (rents a place out from someone else). If he decides to sell at all, it will be the low mortgage property and what he doesn't want is for the bank to go after any profit he makes. What he wants is for the bank to re-negotiate the high mortgage of the other property to suit his means. He's already put in all the details of salary, spending etc.

Maybe I'm being naive and simplistic here, but I would've thought they'd be willing to re-negotiate terms especially given his good record. Also interest only benefits the bank far more than him in the longer term.... After all it's all over the radio etc that banks are willing to work with people who are realistic and want to pay their mortgage in some shape or form to get over the hump. Is that just a line?
 

I think he'd want to get moving on the renegotiations before house A is sold. When I asked a bank for interest only about a year ago, I had to prove that I could not afford the existing payments. If he's got 100k+ in the bank, they're probably going to expect him to use it to fund future payments.
 

I agree with you that you are being naive.

The lenders will renegotate terms for those who have genuine difficulties. But if he has €100k cash available, he has no difficulties. He has a contract and he should adhere to it.

Also interest only benefits the bank far more than him in the longer term....
Click to expand...
If it's a profitable standard variable rate, then maybe. But if it's a low cost tracker, then definitely not.

Also, the bank is at risk if the property is in negative equity.
 
Well it ain't that simple unfortunately cos he needs any potential money raised by a house sale for another non-property-related debt.
This imo should be separate from the fact that he is re-negotiating B, which should be possible since he's never had a problem paying previously and still won't, given the right circs. B is slightly in neg eq but he's not overly bothered by that cos it was always supposed to be a long-term thing and is likely to come good in the end. Also, other monies are likely to come in in the next ten or so years but I know banks don't want to hear that.

Must say it's annoying to think that these people were throwing money at everyone a few short years ago and now aren't even willing to facilitate people in any way at all
 
You made no mention of that other debt earlier
Must say it's annoying to think that these people were throwing money at everyone a few short years ago and now aren't even willing to facilitate people in any way at al
Click to expand...

The banks have been extraordinarily flexible. But if borrowers divert funds to show a preference to other creditors, they are right to go after them.
 
BB I didn't mention the debt before cos it's not relevant. It's not to another lender, it's to a family member who will need it for health reasons (tho it hasn't been called in yet), therefore there's no question in our minds as to what takes precedence.

I'll reiterate my original argument here that the above should be beside the point if he feels he is able to service the B debt right now, just not in a way that totally pleases the bank (but they were falling over themselves to facilitate in any way a few years ago, is my point!).
Also, we both know that the B debt will be fully cleared in 10 to 15 years anyway but I accept that that might be too much of an 'intangible' for a bank..
 
You must log in or register to reply here.
Menu
Log in
Register