Joint tenancy - one not paying

[Broadcaster]

I am posting this on behalf of my friend whose son bought an apartment with a friend under joint tenancy. The son's friend lost his job and stopped paying his portion of the mortgage and my friend's son continue paying the full amount for a short time. However, he couldn't afford to keep up the repayments on the mortgage so let it go into arrears. (also in negative equity)

Now, almost 3 years later, well in arrears and with a restructured loan agreed with the bank for another 2 years agreed, he is considering the implications if he tries to get the friend to agree to forego his half of the property at this stage and sign it over to him - what if any tax complications are likely in this case. Would this be considered a gift? If this is not an option he is seriously considering bankruptcy. He doesn't want to sell due to the shortage of alternative rental accommodation and his inability to afford the current high rental cost. (cheaper to stay put at present - paying 900 pm for a two bed in Dublin 5).

My friend(his mother) is concerned that if he agrees option 2 above, that he will not be able to inherit any of her assets in the future as these could be seized to pay the outstanding amount on the mortgage. I assume this would only be the case if she didn't survive the 3 years of his bankruptcy.

Any advice on the best way to resolve this, would be appreciated.

 

[44brendan]

If the house is in positive equity and the co-owner transfers his share of the title to your son his share of the positive equity will be regarded as a gift. From your post it appears unlikely that the property is in positive equity. Any transfer between the parties will also require approval from the lending bank.

My friend(his mother) is concerned that if he agrees option 2 above, that he will not be able to inherit any of her assets in the future as these could be seized to pay the outstanding amount on the mortgage. I assume this would only be the case if she didn't survive the 3 years of his bankruptcy.

There is a remote possibility that inherited funds/property in the future could be grasped to pay a defaulted debt. However if the mother is currently hale & hearty I would see the risk as remote.

If the bank have given him 2 years on a restructured payment that is in line with or less than renting a similar property he should accept this. Has he considered taking bin a tenant to help with the payments?

 

[Broadcaster]

Hi 44Brendan,
thanks for your answer above.

The property is definitely in negative equity and from what I can gather the bank is not keen on the transfer between the parties (the other party has very little income). I do know that of the two that are on the mortgage, only my friend's son is in a position to pay the reduced/restructured mortgage. However, he is thinking about what will happen down the line when the two years of restructuring is up. He will still not be in a position to pay the full mortgage on his own. At present he has taken on another tenant but looking to the future, he will want to get married and start a family so the apartment will not suit his circumstances for very long.

Bankruptcy is an option he is seriously considering but this will mean he has to find alternative accommodation if he chooses that route. Difficult to know what the best solution might be. I would have thought though that at least with bankruptcy he will be free of this rope around his neck for good and could look forward to buying a home at some stage in the future.

 

[elcato]

So has the son's friend moved out and basically has nothing to do with the property apart from his name on the deed and mortgage ? What age is the one still in the property ? Why not consider stop paying altogether for a few years and then save the rent. Then after the repo is got go for bankruptcy. His credit is shot to bits already so what's another few years.

 

[TLO]

You need to be unable to pay your debts before you can apply for bankruptcy, and at the moment your friend's son can service his debt for the next two years. Having said that, this is not a sustainable solution, it just kicks the can down the road.

A possibility might be to try and find a Personal Insolvency Practitioner (PIP) who is willing to formulate a proposal (Personal Insolvency Arrangement (PIA)) that would reduce the outstanding mortgage to something that is affordable and transfer ownership into the son's sole name. The bank will probably reject it, and following the rejection your friend's son could apply for his own bankruptcy.

Now for the weird bit. Let's assume the bankruptcy application is successful. The bank will be unhappy, but as long as the son keeps on paying the €900 per month the bank probably won't go to the trouble of getting a court order for the sale of the property. So it's a bit like paying €900 per month rent to the bank. In two years time the bank will want a higher payment but if your friends son unilaterally continues to pay the €900 per month it will probably be at least another two years before the bank gets possesion. So thats four years in the property. The Official Assignee won't mind because there is no equity and paying a €900 mortgage payment is cheaper than a €1,200 rent payment elsewhere. And at any point the son can move out, agree to a voluntary sale, and is not responsible to the bank for the shortfall.

ps1; if something like the above is going to be done, do it sooner rather than later. Life is too short, no point in waiting another two years.

ps2; the entire responsibility for the shortfall will rest with the other joint owner.

 

[trasneoir]

The property is definitely in negative equity and from what I can gather the bank is not keen on the transfer between the parties (the other party has very little income).

Makes sense. Right now, the bank has got recourse to two people for this debt. Where's the upside for them in letting one of the parties off the hook?

 

[Broadcaster]

TLO thank you for your advice. I have passed this on to my friend so hopefully her son can find some solution within your suggestion.

Someone asked what age is the son... He is 32 and single at present but does wish to plan for marriage in the next year or so. He really is in limbo at this time with the bank refusing to take the friend's name off the mortgage. Will update when I hear the outcome.