ISI case study - Martin and his buy to let

[Brendan Burgess]

The final ISI case study

Net income| €1,555
Reasonable Living expenses| €737

Family home -owned with his wife

mortgage|€ 255k
value|€300k
50% of monthly payment| €821

Apartment - jointly owned with his brother

mortgage|210k
value|€130k
Rent |€900 per month
50% of monthly mortgage payment| €676

Unsecured debts: €98k

Family home

Home with Monica
The family home has a value of € 300,000 and there is an outstanding mortgage of € 255,000. There is therefore € 45,000 equity in the family home. As Martin’s share of the family home is now vested in the Official Assignee, 50% of the € 45,000 belongs to the Official Assignee.
Monica will have the option to purchase the Official Assignee’s interest in the family home for € 22,500 [50% of the Equity]. The Official Assignee will have to apply to Court to sell this interest to Monica. If Monica is unable to raise the funds immediately she may apply to the Court for a postponement on the order for sale to enable her to raise the finance. The Court will consider the interests of the creditors, and Monica in determining whether to postpone a sale. If Monica cannot purchase the Official Assignee’s interest, the Official Assignee will apply to Court for an order for Sale. For the purposes of this scenario it is assumed Monica is able to raise the € 22,500 and the Official Assignee gets Court approval to sell his interest to Monica.

Buy to let

BUY-TO-LET PROPERTY The Official Assignee will instruct the tenant to pay the rent directly to him as the rent will form
part of the bankruptcy estate for the benefit of the creditors. The Official Assignee will not pay the mortgage in respect of the property. The lending institution may on foot of its mortgage agreement appoint a receiver to collect the rent and from that time onwards the rent will no longer be paid to the Official Assignee. On the basis that there is no equity in the property and the bank prove the security to the satisfaction of the Official Assignee he will surrender possession to the bank where no receiver has been appointed. For the purposes of this scenario we assume the Bank appoint a receiver, values its security at € 130,000 and claims for the shortfall of € 80,000 in the bankruptcy.

Shortfall: €80,000 -
Dividend paid from sale of equity in house - €7,731
Debt write down: €72,269

and

7. MARTIN’S POSITION AFTER MEETING HIS DUTIES AND OBLIGATIONS UNDER BANKRUPTCY

n) The family home is held in Monica’s sole name and Martin pays a contribution to the mortgage going forward.

 

[Brendan Burgess]

This seems fine, apart from the buy to let.

His brother is jointly and severally liable for the full mortgage. The Official Assignee should simply wash his hands of it. He can't tell the tenant to pay the rent to himself, no more so than any partner can tell a tenant to pay the full rent to him.

The brother is the big loser here. He ends up with the full negative equity after the bankruptcy.

I wonder how much the Official Assignee will allow Martin pay towards the mortgage in bankruptcy.

Brendan

 

[Brendan Burgess]

In this situation, Martin would be much better off trying for some form of Debt Settlement Arrangement with his unsecured debtors.

They only get €10,000 under the bankruptcy. Maybe they would settle for €15,000 as a second mortgage on the property?

He keeps his interest in the home.

He keeps his share of the buy to let and so he doesn't sting his brother.

Brendan