Ghost estate house. Try to rent or consult bank about partial write off? Help needed

Hi there. I would be delighted if anyone could advise me on best options. I have heard about mortgage forgiveness coming up down the line, but I feel I don't have the time to wait for this. Plus, I'm not sure of what this offers me?

I own a 3 bedroomed house in a country town. I purchased my house 7 years ago and the value has dropped by approx 150k. I don't live in the house, and have been renting it for the last 3 years (€450 pm). This amount is less than half my mortgage (i've a variable mortgage agreement). My tenants have since moved out, and the house has been left in a condition where approx €2000 will be needed on repairs, removals etc. in order to make it anyway liveable once again. The estate has been recognised as a class 3 ghost estate, unfinished, and exempt from the property tax. The rent will never cover my mortgage, and the house is such a burden on me. I need to look at my options and any advise or recommendations would be appreciated.

Ideally I want to get rid of the house. If I continue to try and rent, apart from putting 2000euro into repairs, it may take 5 or 6 months to get tenants, and even at that, I will be in the same situation if they decide to move out. As it is, i feel the estate isn't attractive enough to get long term tenants.

The ideal option would be to try come to an agreement with the bank and write off a significant portion of the negative equity, and commit to paying the remainder back on my own terms (e.g. 50,000 long term agreement). Is this a possibility in your opinion, and how would you recommend I go about this? Property experts? Go directly to the bank, without representation?

I'm a receptionist and my salary is 28k p.a working and renting in Dublin

Many thanks for any advise.
IcedGem

You should give the information in the format set out in the Case Study before anyone can give you proper advice.

Thanks Brendan,
Upon reading this form, can you advise me of some options to begin? I'm anxious to begin a process ...

Personal and income details
Income self: nature of income e.g. self-employed/public servant etc Private sector 28k
Income history: salary consistent
Income partner/spouse: N/A Single
Income history:
number of children: None
Amount of Mortgage Interest Supplement received - received TRS for first 3 years
Home loan
Lender:
Amount outstanding:
Value of home:
Interest rate: specify whether tracker or SVR or fixed rate Variable
Monthly repayment
Amount in arrears

Summary of discussions and agreements with the bank: Used my moratorium a couple of years ago
Investment property - Initially bought as home but had to start renting out
Lender: Ulster Bank
Amount outstanding: 180k
Value of home: aprox 70k
Interest rate: variable
Monthly repayment aprox €900
Amount in arrears: aprox 12k
Monthly rent received aprox €400

Other loans and creditors -
N/A

Other savings and investments
N/A

How important is retaining the family home to you?
N/A
Which of the following best describes your situation?

I don't care about keeping the family home. Yes
I would like to keep it, but will get rid of it if it means I can get rid of the mortgage associated with it. No
I really want to keep the family home even if it means having a large mortgage and negative equity for years to come. No


Any other relevant information

What is your preferred realistic outcome?
For example: "I will never be in a position to repay the home loan. So I want to sell the house and deal with the shortfall"


Many thanks Brendan
Icedgem

You have a mortgage of €180k

What interest rate are you paying?

Assume it's 5.5%, then the interest cost on the mortgage is around €10,000 per year.

You are getting around €5,000 a year in rent.

So the shortfall is around €5,000 a year.

You are on a salary of €28,000 so you could afford to go interest only at a push.

I don't think that UB will write off any of the loan.


Can you sell it? They will probably allow this which would leave you with a shortfall of €110,000. They will seek to have this repaid over the original term of the mortgage at the existing interest rate.

Here are your options.

1) Struggle on and hope that over the long-term property prices might recover.
2) Go to the UK and go bankrupt - probably the best option.
3) Put a proposal to Ulster Bank involving a sale of the property and a reduction in the shortfall.

If they don't go for 3), go bankrupt in the UK.

It would be cleaner if you sold your house first and got the shortfall converted to an unsecured loan. Less work for the bankruptcy people in the UK and they will close your file faster.

The Irish PIA comes into force over the coming months. The banks may become more flexible in advance of that. So maybe begin discussions with UB now, but don't play all your cards yet.

Brendan

Thanks Brendan.
Unfortunately, as it's a ghost estate, I will find it extremely difficult to rent anytime soon. Even before placing it on the rental market, I will need to put approx €2k into repairing the damage done by previous tenants. As for selling it, again, it being an confirmed ghost estate I will have great difficulty in getting a buyer - the local estate agent has told me this also.
The UK isn't a viable option for me.
Taking this into consideration, I feel I need to approach the bank with some kind of proposal or at least a starting point for conversation. Do I have any cards to play, as the house is unattractive to the public as well as the bank? I was hoping to use the condition of the estate, and the Local Councils agreement of this (I.e. ghost estate) in my favour, in order to push for some kind of unsecured loan / write off.
Hope I'm making senses Brendan and thanks for the assistance for now
Icedgem

There is still no interest, from possible tenants, in my house. I'm full sure, as long as this estate remains unfinished/incomplete, and looking so unattractive (about half of the house in the estate are either left in an unfinished state or have been boarded up) then nobody will want to pay rent to live there.

As a result, I'm thinking of going to bank, with representation, to discuss a proposal to sell the house, and look for a reduction in the shortfall / transfer this to an unsecured debt.

Is there anything else I need to be aware of before I proceed? Could the IBRC promissory notes arrangement help homeowners cause in any way - ie. allow the government to put through PIA quicker?

Finally, has there ever been a case whereby a housing estate, confirmed by the Local Council as a ghost estate, has been looked upon with more leniency by the bank when trying to propose a sale/write off deal?

Any comments will be much appreciated and thanks in advance
Iced gem

Icedgem, Sorry to hear about your predicament.

It would be nice to get a partial write-off but its unlikely for that to happen.

You are actually in a slightly unusual situation in that your house is neither rentable or saleable and this is what you need to accentuate when discussing with the bank.

My advice to you is to request a meeting with the bank and propose a complete moratorium on payments, until such time as the estate becomes finished. You really cant afford anything else.You can tell the bank that you will keep the house on the rental/sale market and any rental payments or sales proceeds will go directly to them if you manage to rent or sell it. You can ask them also for their ideas. Put your proposal in writing to them and keep a copy.

The bank will then have to decide if it is going to foreclose on you (which I doubt) or to run with your proposal. If the bank decides to foreclose, just let them do it, you have nothing further to lose by this. You may be able to deal with the negative equity debt later, through the Insolvency legislation.

If the bank decides to adopt your proposal, you are in a waiting game until the market improves and / or the estate gets finished.

Best of luck.

Dr.Debt

Dr. Debts proposal above sums it up. Except that you should at this stage stop paying the mortgage. Tell them you cannot afford it. This should speed up the process. They will try and hound you with scare tactics, court dates etc. but just remember that its exactly that, threats. They will also try their dammedness to get you to sign up a long term loan solution but don't give in unless it's a really good deal, just don't blink. At some point they will repossess and if you have any other property they will try to get a judgement BUT you don't have any so there's no point (right?). They will monitor your situation for a few years and eventually write off the debt. Only (slight) downfall is you ill not get a loan for 5 years+ which is probably not a bad result.
Good luck

Thanks very much for these idea's Dr. Debt and Elcato.
In order for this process of negotiations to get underway, would both of you recommend I wait for the bank to contact me (ie. stop paying my mortgage, and wait for the arrears letters to come in the letterbox)? Or should I write up my proposal for the bank, and send it to them, flagging them about my situation, proactively?
Elcato, this is the only property I have, so there are no more assets for them to try repossess. When you say monitor my situation for a few years, will there be an independent assessor involved that will be the decider on what I can and cannot afford based on my income?
I can live with not being granted a loan for 5+ years ... One of my main worries has always been the bank determining what they feel I can afford for the mortgage and what my domestic income is.
Your comments have been a great help.

In a sense, it's in the lender's interest that you maintain the house. They don't want to look after a house in a ghost estate. They will stick it into Allsops and sell it for a few grand.

I think you should offer to spend the €2k doing up the house. But in return, you want the mortgage reduced to the current value of the home - €70k. You will pay over the rent and look after the house. Or else offer to fix the house and sell it in an orderly manner for whatever it gets. But they must agree in writing beforehand to write off the shortfall.

I doubt that they will go for it, in which case you just have to hand back the keys.

Brendan

I think I would echo what Dr.Debt has already said above.

Request a full moratorium on payments for the time being on a take it or leave it basis. There's no point in engaging the bank in a big discussion about your monthly budgeting. Your income is modest enough, You have no real attachment to the house and sooner or later the house will be sold repossessed or whatever. Make sure you work to your own agenda and needs. Don't be sucked into trying to please the bank. If you allow it to happen they will suck every last cent out of you.

I don't particularly understand Brendan's proposal to spend 2K on doing up the house.Why on earth would you do that when money is already tight and the house may remain empty for the foreseeable future. Clean the house up as best you can and improve it as much as possible, cosmetically, without spending too much money. If you later find a tenant you can then decide together with the tenant what needs to be done before moving in. Spending 2K on the house now would be completely wasted if the house was to go for auction (for example) I dont think the bank will care a hoot if you spend 2K on the house or not. In fact the bank will probably propose that you pay that 2K over to them directly.

And all this talk about getting write-offs from banks irritates me as well.No bank is going to "front-load" a write off ie write off 110K up front if you kindly agree to resume payments. Any write-offs that do happen will be "backloaded" The write off will happen only at the end of the process when the last agreed mortgage payment has been paid off. Obviously no bank will agree to a write off up-front and face the risk of you defaulting again a year or two down the line. There's a lot of talk everywhere about banks writing off debt however there is no evidence anywhere that any bank has started to do this YET. Any advice at this stage based on getting the bank to write off debt and allowing you to retain the property at the same time is pie in the sky. If write offs do become a reality down the line, its clear that it will only cover the most hopeless insolvency cases. I dont believe that you fit into that category.

Write to the bank :
1) Explain clearly that the house is in a ghost estate with little hope of sale or rent
2) Explain that you can no longer afford the repayments and will cease payments immediately
3) Explain that the house is on the sale and rental market and any rent or sale proceeds from this will revert to them

I believe its not in your interests to hand back the keys. The best outcome for you is that the bank agrees to your proposal and agrees to hold back until such time as the estate gets finished off and the market improves.
If the house can be kept until the estate is finished, the bank will recoup more money and they will be well aware of this.

Its also possible that the bank will not accept your proposal and commence repossession action against you. If this happens and the house is repossessed, I think you should just let it happen. Once the house has been repossessed, the bank will be looking to come to an arrangement on the negative equity portion, which at this stage will be an unsecured debt. This is the time to try and broker a deal with the bank or seek a solution under the new insolvency legislation.

Whether you decide to be proactive or reactive in dealing with the bank after you stop repayments is a matter for yourself. Personally, I think it reflects better on you if you are pro-active and come forward now with your own proposal.
It might be worth mentioning in your letter that you have sought some advice on the matter and this will give the correct impression that you have considered your options at length.

The house has been left in a condition where approx €2000 will be needed on repairs, removals etc. in order to make it anyway liveable once again.

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If the house is not liveable now, it's probably not sellable now. If you are simply handing back the keys to the bank, then don't spend the money. But if you are going to try to rent it, then you have to spend this money. I doubt if a tenant would sign a lease based on an undertaking from a landlord to do some work.

It is risky. You might do the work and never get a tenant.

As an alternative, could you let the house with a rent free period of 4 months on condition that the tenant does the work? Again, this is risky, but you could well get a tradesman to rent it from you.

And all this talk about getting write-offs from banks irritates me as well.No bank is going to "front-load" a write off ie write off 110K up front if you kindly agree to resume payments. Any write-offs that do happen will be "backloaded" The write off will happen only at the end of the process when the last agreed mortgage payment has been paid off. Obviously no bank will agree to a write off up-front and face the risk of you defaulting again a year or two down the line. There's a lot of talk everywhere about banks writing off debt however there is no evidence anywhere that any bank has started to do this YET. Any advice at this stage based on getting the bank to write off debt and allowing you to retain the property at the same time is pie in the sky. If write offs do become a reality down the line, its clear that it will only cover the most hopeless insolvency cases. I dont believe that you fit into that category.

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First of all, you do fall into a hopelessly insolvent case. If you can't rent this property, you will be unable to contribute anything towards the mortgage repayment. Even if you can rent the property, you are pretty much insolvent as well. I am against debt write-offs for most people, but in a hopeless case like this ,it is necessary.

Any write-offs that do happen will be "backloaded"

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I agree with this. But what you must agree with the lender in writing is "If I do X, you will write off the shortfall" This could be - "If I spend €2k doing up the property and sell it in an orderly manner, you will write off the shortfall" or "If I spend €2k on the property and rent it out for 5 years, you will reduce the mortgage to the then market value of the property"

You cannot deal with this problem without a write-off. The bank will have to face this. Banks are not currently doing write-offs, but they will start doing them in the immediate future in advance of the implementation of the Personal Insolvency Act.

If the bank does not reach an agreement with you, you should hand back the keys and avail of bankruptcy. You say that the UK is not a viable option. It's well worth trying to make it viable. But you can avail of the Irish 3 year bankruptcy as an alternative.