Case study Fight to stay in home or agree to a voluntary sale

[Kerrigan]

Would appreciate any input please. My wife's sister is having difficulty paying her mortgage. She is a single parent and solely purchased the property in 2004. Her mortgage went into free fall in 2011 when the recession hit.

Roll on 2014 and she is back in full time employment and her bank agrees to capitalize arrears of 10k. At this stage the repayments have significantly increased and in 2015 she finds herself in difficulty again (realistically the agreement with the bank was unsustainable and inevitably was destined to fail).

The bank agree again to recapitalize and accept full interest plus 70% of capital each month equating to a monthly repayment of approximately €1,880.00.

As of today's date she is €3,000.00 in arrears.

The bank have contacted her and asked her to make them a proposal and if not they will call the loan in.

Some figures as follows:

Remaining mortgage owed: €376,000.00
Value of property: €310,000.00
Payment being made: €1,880.00 PM
Bank would like: €2,390.00 PM
Interest rate: 4.5% SVR

Monthly income after tax: €3,500.00 (made up of salary from job, income from BTL and income from renting a room).
Loan BTL (no equity): €580.00 PM

She contacted a PIP who told her to try and make a deal with her lender and if no deal could be made she could enter into insolvency.

She cannot go on the housing waiting list until the bank formally declares her mortgage unsustainable.

The PIP has advised her that should they take on her case they would be requesting the bank lower the interest rate for a specific period of time.

Do you think she should fight to see another day at this property or agree to a voluntary sale?

 

[Brendan Burgess]

Which lender is she with?

It's probably Bank of Ireland if the mortgage rate is 4.5%. If it is, she can fix for two years at 3.45% and should do so immediately.

If it's permanent tsb, she can switch to a Managed Variable Rate, and pay 4.3%, I think. So she should do this.

Brendan

 

[Brendan Burgess]

Can you give us the Buy to Let figures.

You say she has income from it but no equity.

Does that mean that she has a cheap tracker?

If she has income, she also has a tax liability.

If she is in deep negative equity and has a non-tracker mortgage, then maybe insolvency is a solution.

If she has a tracker, then she should not be considering insolvency.

Brendan

 

[Brendan Burgess]

Remaining mortgage owed: €376,000.00
Value of property: €310,000.00
Payment being made: €1,880.00 PM
Bank would like: €2,390.00 PM
Interest rate: 4.5% SVR

€376,000 @ 4.5% = €1,500 per month, less [€500] per month rent a room, means that her accommodation is costing her €1,000 per month.

She will not be able to rent a property worth €310k for €1,000 a month.

They are the rough principles involved.

When you come back with the further information on the mortgages, I can suggest how best to approach this.

Brendan

 

[Kerrigan]

Hi Brendan,

The lender for her primary residence is ACC. I understand that their fixed rate is approximately 5.5%.

The BTL is with one of the big 3 on a cheap tracker at 1.1%; costing approx. €640.00 per month with income of €900.00. 110k outstanding on mortgage with a value of 70k.

 

[Bronte]

How many years left on the mortgages. What is her age. How much could she rent somewhere decent for?

 

[Brendan Burgess]

I don't know ACC's practice as they have issued so few mortgages. When does the fixed rate end?

In any event, she should look for a reduction in the rate. This would bridge the gap between what the repayments should be and what she can afford. This must be done in writing. Assuming they reject her application, she must appeal and again in writing.

She needs to have a file to show that she has done everything possible and to show how ACC responded to her. This could be useful for a PIP or a judge in the event that ACC seeks to repossess her home.

 

[Brendan Burgess]

The BTL is with one of the big 3 on a cheap tracker at 1.1%; costing approx. €640.00 per month with income of €900.00. 110k outstanding on mortgage with a value of 70k.

OK, so this is profitable and cash-flow positive (at least before tax.) So it's a good investment despite the negative equity.

Brendan

 

[Brendan Burgess]

Remaining mortgage owed: €376,000.00
Value of property: €310,000.00

I don't think that a PIA is a good idea in this case.
She could ask the courts to force a write down of €66k on ACC. However, it sounds as if she can't afford the repayments on €310k either. So the conclusion might be that she should sell her home.

What about a voluntary sale?
I don't think that this makes any sense for her. She would lose her home and her rent would be higher.

Even if ACC agreed to write off the shortfall, I don't think she should go for it. There is fair chance that the shortfall will disappear anyway over the next few years due to capital repayments and house price inflation. Of course, it could get worse if house prices fall. But that wouldn't make much difference to her. She would still be insolvent, only a bit more so.

 

[Brendan Burgess]

How about exploring a trade down mortgage with ACC?

She is able to pay €1,900 a month.
Could she trade down to a house worth €200k?
She would presumably lose her income from rent a room if she did, so it might not work.

If that is possible, then she should put a proposal to ACC involving the following:

• Reduction in the mortgage rate to 3.5%
  
• Trade down to a smaller house
  
• Write off of the negative equity - they won't agree but put it to them anyway.

If she gets the rate reduction and trade down, then she could well be sustainable.

 

[Brendan Burgess]

If these options don't work and if ACC doesn't help her...

I think she should just play hard ball.

Keep requesting a deal. Keep paying what she can. Keep up a file of correspondence.

They may just reluctantly accept it and keep hassling her. But she stays firm.

They may initiate repossession proceedings. These are not as bad as they sound.
She attends court and tells her story.
She will get adjournments for some time.
It's not the courts' practice to grant orders in these types of cases. That may change, but by the time it does, she might well be out of negative equity or her finances may have changed.

Brendan

 

[TLO]

What outcome would OP's wife's sister prefer? For example, would she really like to hang on to the house? If so, then a "no veto" PIA should be considered. It's a lot of work, but the loan balance could be forced down to €310K, the term extended, and the interest rate reduced so that the monthly payment is made to fit her monthly salary. Caveat, the mortgage must have been in arrears on 1 January 2015 in order to be eligible, and that may not be the case here.

Another possibility, why not move in to the rental property? The mortgage is about a third of what ACC are looking for, and the interest rate is really attractive. On paper it seems like a much better option than the hassle of getting on the housing list.

Also, it's worth remembering that ACC is being wound down. They may not be keen on providing alternative facilities. But they might entertain solutions that let them close their files.

 

[Kerrigan]

Thank you to everyone who responded.

TLO, you are correct they do not appear to be keen on providing alternative facilities and it would appear they are going to commence proceedings against her. She is going to hang tight and keep paying however she no longer has the protection of MARP because she has not kept to the agreed repayment schedule as mentioned above and according to whom she is dealing with it is very difficult to make another repayment schedule if you are already in a revised repayment arrangement and have failed to keep up with payments ????

 

[Kerrigan]

Brendan, she met with a insolvency practitioner and he too agreed that 3.5% for X amount of years would be the sensible way to go. I understand the bank rebuked this idea saying the interest rate is the interest rate. Would it be crazy for her to simply pay the full P&I at an interest rate of 3.5% rather than 4.5%?

 

[MrEarl]

If these options don't work and if ACC doesn't help her...

I think she should just play hard ball.

Keep requesting a deal. Keep paying what she can. Keep up a file of correspondence.

They may just reluctantly accept it and keep hassling her. But she stays firm.

They may initiate repossession proceedings. These are not as bad as they sound.
She attends court and tells her story.
She will get adjournments for some time.
It's not the courts' practice to grant orders in these types of cases. That may change, but by the time it does, she might well be out of negative equity or her finances may have changed.

Brendan

I agree entirely with this Mr. Burgess.

I suspect this account is being managed for ACC-Rabo by Capita and their staff would be given specific directions to assist the Bank in unwinding from all relationships in Ireland. That means certain reasonable restructuring solutions may be off the table, simply because the Bank wants out of the relationship.

I expect they would not go to court as the odds are probably not in their favour - given the high lending rate, the regular repayments in excess of loan interest, the fact that it's a PDH etc. Obviously, there's no guarantee, but continuing hastle is what I would anticipate.

If the borrower has not already done so, they should send in a data access request for all information held on them to include a copy of the loan agreement, all amendments to the agreement, a copy of the mortgage deed etc. Then have someone familiar with such documents inspect them to ensure there are no errors or omissions, documents missing etc. If they find something, it gives far greater leverage with Capita / ACC-Rabo and the odds of finding a mistake or ommission are a little better than many people may think.

How many years left on the mortgages. What is her age. How much could she rent somewhere decent for?

I thought these were good questions, but they seem to have been missed.

I would also like to see the answers if possible please, because the loan repayments look very high and suggest the loan term is relatively short (but if the borrower is relatively young, then extending the term of the loan must be an option whether ACC like it or not).

 

[newtothis]

Would it be crazy for her to simply pay the full P&I at an interest rate of 3.5% rather than 4.5%?

I wouldn't say crazy, but I don't see the point. As already suggested, she should continue to pay what she can without leaving herself short in other (essential) areas. If that amount doesn't cover at least all interest and some part capital (which seems far from the case here), then it's not sustainable. However, if it does, then just keep asking for a solution that allows her to stay. Unfortunately, I think it unlikely she'll be offered one - I agree with Mr. Earl on that point.

Although my situation isn't identical, it seems there is now a very common category of borrowers, into which we both fall:

- mortgage in difficulty due to factors outside borrower's control (redundancy, illness etc.)

- fully engage with bank, conforming to all of MARP requirements etc.

- realisation that banks frequently don't conform to MARP requirements

- periods of reduced payments etc. agreed and adhered to (or maybe not, but still maintaining full engagement)

- loan gets transferred to some other party (typically vulture fund fronted by the likes of Capita)

- recovery of circumstances, so now able to pay most if not all of original payments

- point blank refusal of lender to agree to any reasonable solution to arrears, even when they'll be cleared in total (the obvious way by extending the term)

- lender may or may not threaten legal action: this would almost certainly fail, as full payments being made and/or lender refusing to cooperate to resolve arrears

- lender may or may not offer settlement at a significant discount

- borrower cannot refinance elsewhere to take advantage of this, due to arrears

It's hard to see how this will play out: no doubt lenders are hoping to force sales though to pay off the loans, but this could be a disastrous option for many: being left homeless with no possibility of getting another mortgage in the near term. Lenders may start lending to finance settlements in these circumstances – possibly the best option. Or maybe the government will step in and get the regulator to force lenders to offer sensible solutions (and by sensible, I mean one that is actually beneficial to both lender and borrower and nobody loses out). I wouldn’t hold my breath on that last option.

I think the best advice to someone in this situation is what’s already been suggested: sit tight, keep payments up to a level that’s affordable, keep asking for a solution and reject any that doesn’t provide a real solution. Document all interactions, especially any where the lender falls short. Hope that something changes.

It's all very frustrating and stressful, but be assured that she is not alone and it is very, very unlikely anything bad will happen if she sticks to her guns.

 

[Brendan Burgess]

Hi Kerrigan

It seems to me that simply reducing the mortgage rate from 4.5% to 3.5% won't help enough.

She would need to extend the term as well.

The reality of it is that even if ACC does a generous deal with her - cutting the rate and extending the term, she is going to struggle for a very long time. Is it worth it?

Why does she not do a deal on the voluntary sale of the house and move into the investment property? You haven't given us the figures, but a cheap tracker really cuts down the accommodation costs. She would not be in her ideal house, but she would be under no pressure and would be actively paying down the balance on the mortgage. After a few years, she could look at trading up and maybe even moving the tracker to a new property.

Assuming she won't do this and is happy to struggle for the next 25 years...

The minimum she should pay would be the interest on the mortgage which is about €1,400 per month. If she can pay some capital as well, then that would be great.

ACC might or might not actually issue proceedings. If they do, and she shows up in court and tells the Registrar that she is paying the interest in full and reducing the balance outstanding, then, under current practice, they just will not grant an order for possession.

Brendan