Case study Unsustainable Mortgage; Meeting bank rep. next week. How to approach it!

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breakonthru

Registered User
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Hi all,


Any comments on below would be much appreciated. Meeting bank rep. next week. All communication thus far have been amicable but i need to prepare for meeting and am doing up their 'Standard Financial Statement' currently.


:)Thanks in advance:)
_______


Income self:
Self-employed: €1,750 net a month. Contract coming to end mid-March. No renewal.
Pension: None (and not currently paying into state pension).
Income history: Industry I work in unique, no obvious replacement positions available. May need to retrain in another occupation.

Income spouse:
Public servant: €3,070 net a month.
Pension: Public service pension in place. No extra AVC’s being paid.
Income history: Year to year contract renewal.

Number of children: 1

Amount of Mortgage Interest Supplement received:
None, as all houses are RIP properties. One of which we are are currently living in.

Home loan:
No loans are classed as home loans but might declare RIP house we are living in as PPR as that will allow us enter into MARP process but don’t know whether this is just extra hassle.

Investment loan(s):
|Total|Loan 1| Loan 2| Loan 3
Loan Amount||€830k|€285k|€102k
Value||€585k|€50k|€125k
Equity|-€457k|-€245k|-€235k|23k
Rate||1.5%|1.55%|4.50%
Interest||€14k|€5k|€5k
Rent||€20k|€6k|€6k
ownership||wife & I|wife & I|Friend & I
Lender||ptsb|ptsb|Ulster


RIP Loans 1 and 2 below are 5 properties on 2 mortgages in the name of my wife and I.

RIP Loan 3 below is property in the name of a friend and I.

Lender: PTSB for Loans 1 and 2 and Ulster Bank for Loan 3.

Amount outstanding:
RIP Loan 1: Covers four properties - €830,000
RIP Loan 2: Covers one property - €285,233
RIP Loan 3: Covers one property - €102,000

Value of home(s): I am using Residential Property Price Register to try and determine values.
RIP Loan 1: Covers four properties – current value circa: €585,000.
RIP Loan 2: Covers one property - current value circa: €50,000.
RIP Loan 3: Covers one property - current value circa: €125,000.

Interest rate: specify whether tracker or SVR or fixed rate
RIP Loan 1: 1.5% Tracker.
RIP Loan 2: 1.55 Tracker.
RIP Loan 3: 4.50 SVR.

Monthly repayment:
RIP Loan 1: Covers 4 properties. €1,042.50. Interest only payment.
RIP Loan 2: Covers 1 property. €365. Interest only payment.
RIP Loan 3: Covers 1 property. €625. Interest and capital.

Amount in arrears:
RIP Loan 1: €55,147 arrears
RIP Loan 2: €1,986 arrears
RIP Loan 3 No arrears

Monthly Rent:
RIP Loan 1: Circa €1,650
RIP Loan 2: Circa €500
RIP Loan 3: Circa €500
(Lots of changes to these monthly amounts with tenants not paying, vacant periods etc..)

Other loans and creditors:
Below..

Overdraft:
Overdraft available but not using it.

Credit Card:
MBNA
Balance owed: €17,870.33. (Card cancelled)
Repayments €337 each month.
APR: 10.44%

Credit Union:
Balance owed: €1,954
Repayments:
Share: €483
APR: between 6.9% and 8.9%.

Car Loan:
Balance owed: circa €14,500
Repayments: €342 each month.
APR: 8.9%

Other savings and investments?:
None.

How important is retaining the family home to you?
Don’t have one as such as we are living in one of the RIP properties. Would like to stay here to avoid moving out and all the hassle this entails.

Which of the following best describes your situation?
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.

Any other relevant information?
Just don't see how i'm going to pay the extra €3,700 a month (every month) for capital repayments and also pay back the €57,000 arrears..

What is your preferred realistic outcome?
Preferred outcome is as follows -
a)
a. PTSB to allow us keep paying interest only payments for RIP Loan 1 and 2 while keeping tracker and
b. PTSB paying off other non-secured loans and loading same onto RIP Loan 1 or 2 and thereby increasing interest only payments by appropriate amount.
c. Then wait till the houses regain some value over next ten years and once the value equals the outstanding debt – sell the houses to clear debt.

Or

b) Wait to new insolvency measures come out this year in Ireland, and use that process.

Or

c) :mad:Nuclear option:mad: Go bankrupt in UK. Am currently arranging to meet one / two of the advertised debt insolvency agencies / solicitor practices to look at this. Have read up a good bit on it.
 
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Taking a witness..

Will find that hard to do given short notice, people working, don't know my history etc..

If the rep. is 'taking notes' then i'll ask that I can record the meeting using my phone.

This might work
 
Given your financial position, there is nothing much that you can offer the Bank at this meeting. i.e. debt position is unsustainable and given your income and employment prospects, this position is not going to end up in a situation where you can meet any realistic level of loan repayments on the debt. Insolvency is your only option and you should seek professional advice as to whether this should be in ireland or the UK. Winess issue and what is said at the meeting should not be a major concern as the Bank have no options, other than to re-posess the properties. As you are currently living in one of the RIP units this will come under the MARP process.
 
First of all, sell off Property 3 to realise the bit of equity which is there. It is not a profit-making investment anyway. Selling it simplifies the issues. You will have only one lender to deal with.

If you can keep the cheap tracker rates and stay on interest only, you will have €26k rent and you will be paying €19k interest. That leaves a surplus of €7k for maintenance, property charges and taxes.

You have a good income at the moment €5k a month.

A Personal Insolvency Arrangement is not in anyone's interest. It is not in your interest. It is not in ptsb's interest. It just means that money will be going to a PIP instead of to ptsb.

PTSB should be glad to get rid of these cheap trackers.

So I suggest the following proposal to ptsb

1) You will sell all the properties in an orderly manner
2) You will maximise the rent and maintain the properties while you are trying to sell them.
3) The proceeds will be paid in full to reduce your mortgage
4) You will not declare any property your PPR
5) This will leave you/them with a shortfall of €460k which you will treat in a manner similar to a PIA.

You will pay them €1k a month for three years. After three years, they will write off the shortfall.

This maximises the outcome for them and for you.

At the first meeting...
I would be very nice about this.
While I would be very firm, I would not be aggressive.
I would not bring a witness or record the meeting. I think that this is confrontational. They might want to say something to you off the record.
You should bring your wife with you. Let them know that they are dealing with a family.
I would not threaten bankruptcy in Ireland or the UK. They are well aware of the threat.
I would not agree finally to anything at the meeting. If you do agree, make a note of it and say you need to take legal advice and will get back to them promptly.

If you do not reach an agreement at the first meeting, then you should politely thank them for their time and leave the meeting, saying that you will reflect on their proposals.

You could then put the above proposal in writing. And if they do not accept it, you will return the keys to them and avail of bankruptcy.
 
Sounds practical in theory. However, PTSB are unlikely to accept this as a long term solution. Why not?
Property 3 is effectively "washing it's own face". However it's in joint ownership with an external partner & he/she may not be disposed to sell. Agree that it's not an issue of concern.
While the RI at 26K will cover the interest on the associated exposure the high level of negative equity means that the Bank will have a considerable need for some level of capital reduction on the exposure. Generally Bank's will apply the 5% rule towards acceptance of a long term repayment plan. i.e. If a client can maintain loan repayments at a notional 5% of total exposure, they would be agreeable to accept this level of repayments over a medium to long term. In this instance, repayments of 56K pa would be required to meet the 5% rate. OP capacity is nowhere near this level.
By all means approach PTSB with the proposal, but be prepared for a negative response. There is always a chance that they are unprepared to crystallise a loss here and may be prepared to give you more flexibility than another Bank would.
 
44brendan said:
...Property 3 is effectively "washing it's own face". However it's in joint ownership with an external partner & he/she may not be disposed to sell. Agree that it's not an issue of concern.
Click to expand...

Also, Loan 3 (property 6) is with friend and mortgage is with Ulster Bank. Is it possible for PTSB to dictate to Ulster what I should do with that loan?
Or is it that once i apply for a PIA in the forthcoming insolvency service that property 6 will be sold regardless of friends stance?

44brendan said:
By all means approach PTSB with the proposal, but be prepared for a negative response.
Click to expand...

I'll see what PTSB's initial comments are before i put forward Brendan B's proposal in writing (or a modification of it)

Very helpful comments..!
 
Sounds practical in theory. However, PTSB are unlikely to accept this as a long term solution. Why not?
Click to expand...

Hi 44

I worked out the numbers but didn't propose that as a long-term solution. breakon's best option is to get ptsb's agreement to sell the properties and write off the shortfall.

Otherwise, he has to wait for property prices to double from the current level.

I think that both sides would benefit from a sale of all the properties as long as it is accompanied by a write-off of the shortfall.
 
Also, is there any value to me declaring the RIP property that i'm living in as my PPR? Would this put me in a better position vis-a-vis the forthcoming insolvency / bankruptcy service?

I read somewhere that a PPR maybe sold within a insolvency/bankruptcy proceeding but that under the new insolvency service a housing assoc. would buy it and then we would rent from housing assoc. while remaining in our 'home'.

Any truth to this?
 
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Brendan Burgess said:
Hi 44
Otherwise, he has to wait for property prices to double from the current level.
Click to expand...

Could property values double from the low they are now within the next ten years? Is this wishful thinking? Better for PTSB to crystalise losses nowvia bankruptcy rather then wait and see?
 
breakonthru said:
Also, is there any value to me declaring the RIP property that i'm living in as my PPR? Would this put me in a better position vis-a-vis the forthcoming insolvency / bankruptcy service?

I read somewhere that a PPR maybe sold within a insolvency/bankruptcy proceeding but that under the new insolvency service a housing assoc. would buy it and then we would rent from housing assoc. while remaining in our 'home'.

Any truth to this?
Click to expand...

The PIA should protect your family home. But the lender has a veto, so I doubt if they would leave you in a home while writing off hundreds of thousands.

Under the current practice, a housing association might buy one of your houses and rent it back to you. However, it is very hard to qualify and I am not sure that it is worth the hassle.

Overall, I would probably tell ptsb that one house is your PPR but that you will surrender this as well as part of an overall settlement.
 
Up to mid March you are having an nett income of €4,820.00 from work with no personal Mortgage. This is a pretty good nett income without a personal mortgage.
On the two RIP's that you hold between you there is a surplus of Income over Interest of €7,000.00. Have you continued to pay the surplus Income over Interest towards the Loans. There were many times when I made big sacrifices in order to reduce the loan from a meagre enough income in times past.
Would your friend be able to buy House No 3 out and take away the stress.
Again looking at your current joint personal Income up to now with no personal mortgage I am a bit surprised at the size of the car loan, the Cr. Card debt and Cr. Union Debt.
Looking at the amount of arrears on the RIP's this problem has been going on awhile.
I know this is not the way you asked for it to be looked but I think there has been an element of overspend going on here for a while and you need to look at this as well. Sorry if I appear to be negative.
 
element of overspend

Hi Dermot,

The overspend was on a couple of factors. One was the adoption process that we went through in 2010 costing over 20K. This was after spending an equivalent amount on IVF, surgery etc between 2008 - 2010.

Also, a lot of cash went on the renovation, insulation of the houses so they are in good nick.

One problem which my accountant told me which will kick in this year is that my tax returns will increase hugely. This is because up to now all the work on the houses was written off against tax due.

This has now run its course and the tax bill came to a net of €1,000 in 2011 but will increase a lot when return is done for 2012. This will probably wipe out any rental income 'earned' after interest is paid...

Still have to pay this €1,000 to revenue :(
 
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Overall Settlement vs PIA route and costs of PIA

Brendan Burgess said:
...surrender this as well as part of an overall settlement.
Click to expand...

Brendan et al,


  • If there is an overall settlement worked out - does that mean both creditor and debtor avoid getting a PIA set-up / going through that process. I.e. its a private agreement between PTSB and ourselves for selling up and then hopefully writing off remaining debt?
  • What would the reason's be for an 'overall settlement' not working out?
  • Anyone have an idea how much it will be to set up a PIA from debtors POV? (One of the Irish / UK bankruptcy solicitor practices is quoting a figure of roughly €6K for going through UK bankruptcy procedure. This in addition to all the costs of relocation.)
 
I may have picked this up wrong but I was at a seminar recently on insolvency and understood that the debtor pays nothing other than some small nominal fee, can't remember the amount, very small anyway, and the actual fees for the PIA are paid out of the funds that will go to the creditors. So while you do pay as such it is part of the payments you would be making anyway and not an upfront fee and it is the creditor that is losing out on that part of the payments you make.

Correct me if I am wrong anyone, that was the way I picked it up on the day.
 
breakonthru said:
  • If there is an overall settlement worked out - does that mean both creditor and debtor avoid getting a PIA set-up / going through that process. I.e. its a private agreement between PTSB and ourselves for selling up and then hopefully writing off remaining debt?
Click to expand...
Correct




  • What would the reason's be for an 'overall settlement' not working out?
    Click to expand...
Unrealistic expectations on behalf of the borrower or the lender may result in such an agreement not being reached. The banks are still scared that if they put in writing to you that they will write off the shortfall, they would be inundated with such proposals from the many people who can pay, but just won't.


  • Anyone have an idea how much it will be to set up a PIA from debtors POV? (One of the Irish / UK bankruptcy solicitor practices is quoting a figure of roughly €6K for going through UK bankruptcy procedure. This in addition to all the costs of relocation.)
    Click to expand...
I heard the guy in charge of the new Insolvency Service discuss this today and he said that he would let the market determine this. So if your PIP has very high fees, the bank will probably veto it.
 
Again fine in theory but PTSB will not approve the PIA as it's not in their interest to do this. You should enter the MARP process in respect of your PPR. However there is no guarantee that this will protevt you over the long term. Your income popsition will need to improve in order for this option to be any way viable.
PTSB could immediately appoint a fixed asset receiver over the rent from the properties, but again, they may be prepared to work with you on this.
I note BB's comment re parking or writing-off an element of the capital as an option, but as yet banks are not (to my knowledge) looking at this as a viable alternative to selling off the assets.
Take BB's advice re the first meeting and realise that realistically the ball is in their court. i.e. they need your co-operation and threats of legal proceedings are likely to be bluster, as there is little they can do other than go for re-posession of the properties. Keep us advised on how you get on!
 
Creditors agreement for PIA to happen;

44brendan said:
...but PTSB will not approve the PIA as it's not in their interest to do this.
Click to expand...
So basically, if i approach a PIP to do a PIA, but from the 'get-go' PTSB say they do not want to engage with PIA - then PIA can't happen and I forget about engaging a PIA!! (This on the basis that PTSB / me can't come to some 'overall settlement' first..)
Or
After PIP draws up the PIP and presents it to creditors, PTSB will then (could then) reject it...

So whats the point of this insolvency process if i'm getting signals that creditor won't entertain/accept a PIA before i even engage a PIP?

44brendan said:
You should enter the MARP process in respect of your PPR.
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You mean like now, immediately? Or after first meeting with PTSB next week? I think this makes sense as it gives me some time to save monies with regards to UK bankruptcy / relocation - if indeed this is the 'final solution'. This obviously means that I have to divert cash from possible loan repayment to bankruptcy fees..

44brendan said:
However there is no guarantee that this will protevt you over the long term.
Click to expand...
You mean 'protect PPR over the long term'..? I personally don't need long term protection as its eventually insolvency / bankruptcy here or in the UK. The proposed PPR will have to be given up but at least it gives me a year to prepare for insolvency / bankruptcy / relocation.

44brendan said:
PTSB could immediately appoint a fixed asset receiver over the rent from the properties.
Click to expand...
Yes, their choice - but two properties are becoming vacant soon so they would have to clean them up and rent them out. Rural location, good few similar properties for rent.. I think it be easier for them to let me do it and give as much of the rent to them as possible?

44brendan said:
looking at this as a viable alternative to selling off the assets.
Click to expand...
I agree that assets have to be sold - but it will take time unless the sale price is dropped radically from what i suggested as the current value in the OP. 5 of the 6 properties are in one rural town where values have plummeted and there is currently (daft.ie) 24 houses for sale.

44brendan said:
Take BB's advice re the first meeting and realise that realistically the ball is in their court. i.e. they need your co-operation and threats of legal proceedings are likely to be bluster, as there is little they can do other than go for re-posession of the properties.
Click to expand...
You mean 'ball is in my court'. If so, tis' looking more like a golf ball :eek:
 
When you meet your bank be open with them.Be business-like and let them know that you understand the situation you are in. Be firm and let them know that you are in control of your situation.

In spite of what others have mentioned already, I say, don't be afraid to mention the Bankruptcy word to them, not in a threatening way but as one of the possible solutions for you. After all that is what you are there to discuss.Let them see that you have looked into this option and are aware of what it entails. I think you have a better chance of getting a realistic settlement with the bank if they consider you a true "bankruptcy risk".

I think your own proposal is a good one. Offer to pay interest only on all the properties until the market recovers a bit. You will need to get them to capiatlize the arrears and possibly some of the other unsecured debts.
This is not a particularly attractive option for the bank with such high negative equity BUT it might very well be THE MOST attractive option open to them. Try to get into the habit of putting everything in writing. Somewhere in the process you may end up before a judge and evidence that you have proposed one or more settlements to your lenders may help you at that stage

I agree with Brendan44 that the banks have not yet reached the point where they will sanction large write offs. I think split loans and interest only arrangements will rank higher in the bank's preference and its extremely hard to envisage them agreeing to PIAs that involve large scale debt forgiveness.

You need to get a good deal from the bank or else you should consider going bankrupt. Focus on that and let the bank know that it is your focus.

Best of luck.
 
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