Jointly & Severally Liable - 1 Party Non-Compliant

[mrhappy]

House bought in 2005 - mortgage is €260k (of which about €6k is arrears). We don’t live in the house now because of changed personal circumstances and instead we rent in Dublin. The mortgaged house is rented out and gets rental of €825 per month.

We haven’t been able to pay the mortgage (AIB, variable) in full for the last two years and have been paying what we could afford - €550 per month. We have been trying to get a split mortgage for the past year (as originally suggested by the bank in order to park the negative equity (about €140k).

The problem arises because there are 3 parties on the mortgage – myself, my wife and her mother who is now retired. My wife and I have completed SFS forms as required but her mother won’t do this. She has never contributed to the mortgage nor was it envisaged that she would. She is terrified that the bank is going to pursue her and her assets. It would appear that as we haven’t complied fully (all 3 parties to complete the SFS) we will fall outside the MARPs process and therefore not be afforded the protections it gives. We have written to the bank to explain but haven’t had a reply and have been told that we are on the list for a call back. To be honest, we have always engaged with the bank but have found it a nightmare to deal with them due to their inconsistencies.

I should mention at this point a very relevant fact – it is in our mortgage contract with the bank that my mother-in-law can be released from liability when the mortgage balance reaches €196k.

The questions I have are:
1. As we are jointly and severally liable what can the bank do to recover the arrears and to ensure payment in full?
2. Should we sell the house to pay off as much of the loan as possible? Frankly I cannot see the house recovering its value for many years if at all. I am not attached to the house and would like to move on.
3. If we sell the house (as proposed by the bank almost a year ago) either with the bank’s consent or by invoking a S.94 against the bank the mother-in-law will be released from the mortgage liability but we will be left with substantial negative equity to pay. We will not be in a position to pay this in full ( circa €700 per month) long term due to having to pay rent etc therefore it is unsustainable.
a. Is this loan converted to an unsecured loan?
b. What can the bank do to recover this loan?
c. We can pay something towards this but is the amount means tested?

 

[Bronte]

House value: 120K
Mortgage: 260K
Negative Equity: 140K

1. Yes all 3 of you are liable, so if someone decides not to pay, and cannot pay, then the others should pay. If the mortgage is not paid the bank will come after all 3 in theory, but in reality they will go after the one with the most money. And also generally they go after the easist target. Your MIL is right to be worried if she has a good income or assets. Even worse for her is that the rent doesn't cover the mortgage, your income is not able to subsidise this mortgage. And she's burying her head in the sand.

2. Depends, could you and your wife pay off a mortgage of 140K at the same interest rate and term as currently? I don't think you can based on the fact that you don't seem to be even paying the current rent towards the mortgage but I cannot be sure. What happens the excess of rent over mortgage of 275 Euro a month?

3. I don't understand. What is S94? How would your MIL then not be liable? If the bank allowed you to sell, and that gets MIL out of the loop, and your'e only left with the NE what's the problem. The bank cannot get the NE from you if you cannot afford it and they will have to write it off. If you were offered this and turned it down, if I were the MIl I wouldn't be speaking to you.

4. The bank will decide how much you can afford, kinda like a means test, based no doubt on what you fill out in the SFS. I don't understnad how you say you can pay something, yet you are not even paying anything now towards the mortgage other than rent. Do you have excess income. If there is no property, than the mortgage is not secured, so it will be an unsecured loan. To get this repaid the bank can go after your assets, get an instalment order on your income.

 

[mrhappy]

Thanks Bronte. Regarding your reply:
1. The MIL is the party to the mortgage with the most assets but as I understand it the bank have to go after the mortgaged asset first i.e. the house in the case of non-payment? If she won't pay anything (and we don't expect her to) and we don't have the means to pay then surely the bank will either have to accept what we can afford or they will have to suggest a sale or voluntary surrender as a means of reducing the liability and then ask us to continue paying of the balance of the NE? My question, I suppose is - what can the bank really do in the case of non-payment - surely they have to repossess the house in the first case?

2. We couldn't pay off the mortgage of €140k at same interest rate and term as currently. The excess rent over mortgage has been used largely to cover maintenance costs and insurance on the mortgaged house...

3. S94 is what is called a " short forced sale" and arises in cases whereby the mortgagees want to sell the house in order to reduce liability but the bank won't agree. In this case the mortgagees can apply under S.94 of the conveyancing act to have the house sold. The bank is then forced to agree. Banks don't like this in cases of negative equity since they now have an unsecured asset and this is obviously riskier for them. The bank haven't allowed us to sell - they suggested it a year ago but then they also suggested a split mortgage and when we tried to get that they refused and obsfucated. The MIL was in favour of the split mortgage idea but is now terrified that she has to fill out the SFS in order to get it and so won't do so. Therefore she is putting pressure on us to pay...and we don't have the money.

4. We don't have excess income but my point is that if the affordability is means tested then we might have to pay something i.e. if they thought we were spending too much on food or electricity they may assess us as being able to pay something.