Mortage Break-up

[Kine]

Hi,

A query for maybe some of you legal eagles/brokers who know a little more about mortgages than me. Let me lay out the details:

A friend and his g/f bought an apartment together. However, it looks like they're splitting up. Now, it was a joint mortgage and everything was split 50:50. He wants to keep living in it, she doesn't. He's asked my advice (poor guy!).

The options as I see it are as follows:

1: Sell the apartment and move on. However, there is a substantial amount of negative equity (depending on selling price could be as much as €70k. Obviously, on a sale, this would split into a €35k loan each which they then service themselves as they get on with their lives. However, neither are really happy to do this, due to said negative equity and the hope they don't need to sell.


2: Keep the apartment. However, if she doesn't want to live there she doesn't want to pay a mortgage etc. Financial issues aside for only one person taking on the mortgage (as there are some) what are the options available to the person who wants to keep it? As I see it:

• Remortgage to take g/f off existing mortgage. This is a non-runner as (i) wouldn't get approved for the amount needed to re-mortgage and (ii) new mortgage would be on current value of apartment therefore initialting the negative equity I mentioned.

So, as can be seen, financially they can't really do much with the current mortgage by ways of remortgaging etc (he also doesn't want to as at the end of his fixed mortgage rate he comes off onto a tracker..). So, how can he sort it that she has no recourse back to him down the line (as she is on the deeds as well naturally) to the apartment, as he will be paying the whole thing but she still technically owns 50% of the apartment even though he is now paying the whole mortgage and she has decided to walk away (essentially cut her losses and go).

I kinda rambles, if you need mroe clarification just ask!

K

 

[Guest110]

What if he pays her back the mortgage payments that she has already made and for her to then cut her losses and take her name off the house ? Tell her to forget about the deposit that she put in and put that towards the negative equity that they are both feeling the pain off. Although the banks might not let this happen unless he can prove that he can pay it on his own.

She is not entitled to half the house if she is not paying her half of the bill.

 

[Brendan Burgess]

This is a very difficult one.

Plan A
It is as if she is a tenant with a lease and she moves out. She must find a tenant to replace her. She gets the rental income from that tenant.

She continues to pay 50% of the mortgage payments and the running costs of the house.

Plan B
They jointly try to find a friend who will find a buyer for her share. She has to face up to the fact that she has negative equity.

Plan C
He should not rule out buying her half of the house. He should buy it at the current value and this will trigger negative equity for her. If they can provisionally agree a figure, then he can approach the lender and they might lend the money to him. He has nothing to lose by trying.

He should be careful about not losing his current mortgage rate which could well be a very favourable tracker.

Brendan

 

[Bronte]

There is only one proper solution and that's to sell and move on. Anything else will only lead to more problems.

 

[dewdrop]

I assume OP intended to refer to a possible loan of 35k euro each to meet shortfall of 70k. These figures could well be optimistic. I gather one of the unfortunate results of the current crisis is that seperating couples have to continue to live together because of the negative equity situation

 

[Kine]

There is only one proper solution and that's to sell and move on. Anything else will only lead to more problems.

Totally understand your point. However, he is adament he wants to stay on, due to location of apartment and the quality of life it gives over many other places he could live. It is centrally located for everything he does (LUAS for work etc) and sports etc. Renting in the area is an option, but not the most ideal one (although will not be totally excluded). He would prefer to nearly move back home than to rent!

What if he pays her back the mortgage payments that she has already made and for her to then cut her losses and take her name off the house ? Tell her to forget about the deposit that she put in and put that towards the negative equity that they are both feeling the pain off. Although the banks might not let this happen unless he can prove that he can pay it on his own. She is not entitled to half the house if she is not paying her half of the bill.

I'm not quite sure I understand what you're getting at here? I think she's willing to walk away regardless of getting any capital contributions back (which have been minimal over the two years). However, were you implying removing her off the mortgage (and therefore off the title deeds)? Is this possible without taking out a new mortgage (therefore removing the old one)?

This is a very difficult one.

Plan A
It is as if she is a tenant with a lease and she moves out. She must find a tenant to replace her. She gets the rental income from that tenant.

She continues to pay 50% of the mortgage payments and the running costs of the house.

An interesting workaround. The second bedroom being rented out is definitely what is going to happen, I had not thought of this angle on it

Plan B
They jointly try to find a friend who will find a buyer for her share. She has to face up to the fact that she has negative equity.

Hmmm another interesting angle I hadn't thought of, buying out her current market value share. However, dioes this not end up removing the current mortgage contract and a new one being drawn up (as well as legal work for the deeds)?

Plan C
He should not rule out buying her half of the house. He should buy it at the current value and this will trigger negative equity for her. If they can provisionally agree a figure, then he can approach the lender and they might lend the money to him. He has nothing to lose by trying.

Similar to above, had thought of it but didn't really think it would work. Will get him to approach his bank. However, figuratively speaking, say they owe €360k on the mortgage and apartment is worth €300k He buys her out for €150k leaving her with a negative equity of €30k. How the hell does this work for mortgages? A new "mortgage" contract is drawn up for him for an amount of €330k and she gets a loan of €30k? I can't see how this will work, as not bank is going to give him a 110% mortgage for the value of his apartment?

He should be careful about not losing his current mortgage rate which could well be a very favourable tracker.

He is on a fixed of 5.29% at the moment. However, come November it becomes ECB + 1% (or something like that) which, at current rates is around €600pm cheaper. As a result, he would like to keep this as he feels interest rates are going to stay low for around the next 12 months, at which time he may chose to fix at a much more agreeable rate than 5.29%!


Cheers,

K

 

[NicolaM]

Hi Kine,

I'm just trying to think this out:

It looks as if many of the solution have her left on the mortgage and deeds.

A=still on the mortgage

B=realisation that she actually owes money on the mortgage, beyond the value of the apartment=she's still on the mortgage unless she pays the negative equity she owes.

C=She will have to pay money to get out of the mortgage ?will she do this? If not, still on the mortgage.

Does she feel that she can get out of this legal commitment, and not pay what she owes? (it is entirely possible that she feels this, and she in fact may stop paying the mortgage. I have seen previous situations on here where this has happened. This would mean that your friend would have to pay the mortgage, or risk losing the apartment, and getting a bad credit rating. She would still be on the deeds of the house however)

Re her capital contributions, and initial deposit:This is tough luck, I would imagine, as she owes more than her investment. She is now not owed anything, and in fact, owes a minimum of 35,000, so it isn't as easy as 'losing her deposit' etc.

At least, this is what I can make of the situation.
It sounds like this could be a difficult one to work out for your friend


Nicola

 

[Bronte]

Totally understand your point. However, he is adament he wants to stay on, due to location of apartment and the quality of life it gives over many other places he could live. It is centrally located for everything he does (LUAS for work etc) and sports etc. Renting in the area is an option, but not the most ideal one (although will not be totally excluded). He would prefer to nearly move back home than to rent!

He should focus on getting out of the mess and not focus on what he wants.

If he had the money to buy her out or get a mortgage I would give different advice.

 

[Kine]

Thanks for all the advice, I will let him know all the options put forward here and see what he thinks.

Bronte, I still think your scenario is the final option, after trying to get anything else sorted. The thing is, he could afford to "buy her out" per say, as in, could afford to service a mortgage which combined his half of the original asking price and the half of the market price to buy her out. The problem being that to do this, a bank would have to give a mortgage in excess of 100% (assuming he gets no parental assistance etc...don't know how likely this is) which is not very likely!

K