Defaulting on a Buy To Let mortgage. What would happen?

antiskeptic

A friend of mine bought his 2 bed buy-to-let on around (he reckons) the day the market is now considered to have turned in a permanent way in 2007

:cool:


The apartment (in Balbriggan) cost 260k all in (incl. furnishing and fittings) with 190k coming from an unsecured (on his own house/assets) mortgage loan and 70k coming from a top-up mortgage (from a separate bank) on his own house which was ostensibly going to be spend on a kitchen extension. He utilised this 70k as a deposit on the apartment + furnishing it.


He's been on interest-only on the BTL since he bought it - which involves his contributing approx. euro 400 per month out of his own pocket to subsidise insufficient rental income. This, in addition to increased payments on his house mortgage.


I'd suppose the apartment as fetching 100k - on the off chance he could find a buyer.


-


If he walks away he'll have lost the 70k straight out given that he'll have to continue paying the mortgage on his own house. The bank will firesale the apartment for (say) 80k leaving 110k outstanding on the main loan. What would likely happen next - given the fact the main mortgage wasn't secured on his own house?



(I'm not looking for a moral commentary - although it must be said that at 70k down, I think he'd have contributed a decent share to the overall responsibility quotient involved in this situation coming about)

Tigger

still has to pay secured or not

Slydice

http://www.citizensinformation.ie/en/consumer_affairs/consumer_protection/consumer_rights/mortgage_debt_and_consumer_protection_codes.html

Other loans and debts

Even if you have no mortgage on your home, it could be in danger of repossession if you have other debts. If you build up other debts and are unable to repay them then the people to whom you owe money may register that debt as a 'judgment mortgage' against your home and seek to recover their money in that way (see our document on repossession).

Tigger

Slydice wrote: »

http://www.citizensinformation.ie/en/consumer_affairs/consumer_protection/consumer_rights/mortgage_debt_and_consumer_protection_codes.html

much better put than my unlinked claim

ANXIOUS

All ill say is transfer assets out of his name.

nhunter100

antiskeptic wrote: »

A friend of mine bought his 2 bed buy-to-let on around (he reckons) the day the market is now considered to have turned in a permanent way in 2007

:cool:


The apartment (in Balbriggan) cost 260k all in (incl. furnishing and fittings) with 190k coming from an unsecured (on his own house/assets) mortgage loan and 70k coming from a top-up mortgage on his own house which was ostensibly going to be spend on a kitchen extension. He utilised this 70k as a deposit on the apartment + furnishing it.


He's been on interest-only on the BTL since he bought it - which involves his contributing approx. euro 400 per month out of his own pocket to subsidise insufficient rental income. This, in addition to increased payments on his house mortgage.


I'd suppose the apartment as fetching 100k - on the off chance he could find a buyer.


-


If he walks away he'll have lost the 70k straight out given that he'll have to continue paying the mortgage on his own house. The bank will firesale the apartment for (say) 80k leaving 110k outstanding on the main loan. What would likely happen next - given the fact the main mortgage wasn't secured on his own house?



(I'm not looking for a moral commentary - although it must be said that at 70k down, I think he'd have contributed a decent share to the overall responsibility quotient involved in this situation coming about)

The bank will seek a judgement mortgagage on his own private home transferring the house into a partners name may not work either best get legal as soon as he can

antiskeptic

So how does that work - transferring assets out of his name. I take it that there would be time limits on the efficiacy of this - that you couldn't transfer the house to your wife this week and walk from the BTL next..

Slydice

http://www.irishstatutebook.ie/1990/en/act/pub/0033/sec0135.html

Subject to the provisions of this section, any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which is unable to pay its debts as they become due in favour of any creditor, or of any person on trust for any creditor, with a view to giving such creditor, or any surety or guarantor for the debt due to such creditor, a preference over the other creditors, shall, if a winding-up of the company commences within 6 months of the making or doing the same and the company is at the time of the commencement of the winding-up unable to pay its debts (taking into account the contingent and prospective liabilities), be deemed a fraudulent preference of its creditors and be invalid accordingly.

Slydice

Investment mortgage can't be paid - can home be taken from us?
http://www.askaboutmoney.com/showthread.php?t=152483

Family Home at Risk?
http://www.askaboutmoney.com/showthread.php?t=50228

antiskeptic

Anybody know where to go for good advice on the legal side. MAB's aren't interested once you can theoretically make the repayments - which he can.

As with most things, you're probably better of paying for it - so does anyone recommend a good specialist in this field?

Victor

I imagine there are solicitors and accountants that specialise in debt restructuring.

Rulmeq

ANXIOUS wrote: »

All ill say is transfer assets out of his name.

What would that achieve?

Fraudulent transfers can be reversed if the lender goes to court:
http://www.irishtimes.com/newspaper/finance/2011/0309/1224291667322.html
http://www.irishtimes.com/newspaper/finance/2011/0402/1224293646742.html

Also, why do people insist on calling these "buy-to-let" when they were clearly "borrow-to-let"

Monty Burnz

Is he trying to wriggle out of his responsibilities and dump his losses on the taxpayer because he can't pay, or because he simply doesn't want to pay? Because if he's an amoral arsehole in the second category, they will still be chasing him for the money by garnishing his salary or taking a lien on his other property.

If he can't pay, the picture is different and he can expect a lot more sympathy from the system.

antiskeptic

Monty Burnz wrote: »

Is he trying to wriggle out of his responsibilities and dump his losses on the taxpayer because he can't pay, or because he simply doesn't want to pay? Because if he's an amoral arsehole in the second category, they will still be chasing him for the money by garnishing his salary or taking a lien on his other property.

If he can't pay, the picture is different and he can expect a lot more sympathy from the system.

I'm supposing his view to be that he borrowed money from a private sector bank and that his dealings are with a private sector bank. That the taxpayer (or State, on the taxpayers behalf) decided to undergird the banks is the taxpayers affair.

Regarding the morality of the situation?

As outlined in my OP, there are a number of parties involved in blowing up the bubble wherein this state of affairs came about:

1) My Mate

2) The Banks

3) The State

4) The Other Vested Interests.


Perhaps there is a case to be made that my mate shoulder all the burden involved but I can't see it myself. I certainly would have no moral reservations in acting like he would like to act - despite my being one who will end up contributing to his default in the case that he does default.

The idea that the taxpayer pick up the tab for private sector gambling is abhorrent to me but we voted in a government that choose to do so and we must bear the cost of that. I don't see why the responsibility for private sector gambling should evaporate simply because it's been shifted elsewhere.

In the case of a default, where he could evade being taken for more repayments, he would end up shouldering about a third of the total burden. Sounds about fair to me, give or take.

Monty Burnz

antiskeptic wrote: »

Perhaps there is a case to be made that my mate shoulder all the burden involved but I can't see it myself. I certainly would have no moral reservations in acting like he would like to act - despite my being one who will end up contributing to his default in the case that he does default.

It doesn't seem to me why it makes a difference whether he borrowed the money from what used to be a private bank when he decides not to pay it back. Tesco is a private company too, as is my local Jewellers. Does that make it ok if I agree to pay them for some product on credit, and then decide (having consumed the product) that I didn't feel like paying after all? It's still theft.

The fact that whatever he bilks the taxpayer for will have to be made up out of the same budget that pays for pensions, hospitals and education only makes it worse.

I don't see why the responsibility for private sector gambling should evaporate simply because it's been shifted elsewhere.

Isn't this exactly what you are proposing your friend does? This is clearly morally wrong.

ANXIOUS

I was going to try and explain a legal way to help your friend. But to be honest why help someone who doesn't accept full responsibility for their actions?

Your friend both the house, no one held a gun to his head.

You are right it is with a private institution, who I hope will chase him for every penny after what you wrote.

antiskeptic

Monty Burnz wrote: »

It doesn't seem to me why it makes a difference whether he borrowed the money from what used to be a private bank when he decides not to pay it back. Tesco is a private company too, as is my local Jewellers. Does that make it ok if I agree to pay them for some product on credit, and then decide (having consumed the product) that I didn't feel like paying after all? It's still theft.

To my mind it makes it ok if Tesco's are part-culpable for the state of affairs as we find them today. Which in the case of the banks is most certainly the case

The fact that whatever he bilks the taxpayer for will have to be made up out of the same budget that pays for pensions, hospitals and education only makes it worse.

That was a choice the taxpayer made (or the State did on the taxpayers behalf). If the State felt it had no choice then it only has itself to blame - it sat at the helm and are end responsible for allowing themselves to be placed in the position they found themselves in.

Isn't this exactly what you are proposing your friend does? This is clearly morally wrong.

He'd be a paying just over a third of the total responsibility (70K).

I was suggesting that the Bank's responsibility isn't dissolved just because it's been shifted to the State.

Then there's the State's own responsibility - quite aside from that which they've shouldered from the Banks. Combined (Bank and State) there's another 100k to pick up.

D3PO

I really cant understand how people expect to come on here and have others suggest how they can get around their financial responsibilities.

Its clear form youir opening post that your friend isnt in a situation that has him close to destitute but rather is trying to find the best way to limit his losses.

How about he grows a set, acts like a man sells his "borrow to let" and suck up the loss like any morally respectable person would do.

D3PO

antiskeptic wrote: »

He'd be a paying just over a third of the total responsibility (70K).

I was suggesting that the Bank's responsibility isn't dissolved just because it's been shifted to the State.
.

The bank dont have a responsibility we dont sell non recourse loans in this country.

Why should your friend only take a 1/3 of the responsibility and the bank/taxpayer take 2/3 of it.

antiskeptic

ANXIOUS wrote: »

I was going to try and explain a legal way to help your friend. But to be honest why help someone who doesn't accept full responsibility for their actions?

He's accepting responsibility alright. To the tune of about 70K. There's the issue of others responsibility to address however.


Austin Hughes, Chief Economist IIB Bank (speaking on 12th May 2006):

I think it is only slightly provocative to suggest that a more pertinent question is to ask why Irish house prices are rising so slowly.

Dermot Ahern

It looks like we will have one more interest rate rise in 2007, but all the indications are that interest rates will decline in 2008″.

Bertie Ahern Friday, April 07th, 2006

The Taoiseach has said he does not see a great problem with the levels of borrowing to buy property.

Mr. Ahern said there had been predictions of a huge downturn in 2005.

He added the bad advice given by so many resulted in some people making mistakes when they should have bought property last year.

Brian Cowan 13th of April 2006

The construction industry, to its credit, has responded to these demand pressures by increasing its output very substantially. Over the last 10 years, over half a million new dwellings were built. Last year saw the construction of a record 81,000 units. We are now building 20 houses for every 1000 people living here, compared to just 5 per thousand for the EU as a whole.

Dan the Man Monday, 31 July 2006

The latest review of the property market from Bank of Ireland suggests that the average house price nationally will climb towards euro 400,000 by the end of this year. This figure is much higher than earlier reports had predicted.

The bank's Irish Property Review forecasts that 2006 will set new records for house prices, house building and mortgage lending, though price growth will slow towards the end of the year.

Economist Dr Dan McLaughlin said he was raising his forecast for price growth this year from 9% to 12%, attributing the acceleration in prices this year to employment growth, strong wage increases and rapid population growth. This would bring the average price nationally to €395,000, with an average of €532,000 in Dublin.

http://www.thepropertypin.com/viewtopic.php?f=4&t=2631&start=15

antiskeptic

D3PO wrote: »

The bank dont have a responsibility we dont sell non recourse loans in this country.

Why should your friend only take a 1/3 of the responsibility and the bank/taxpayer take 2/3 of it.

The issue isn't legal responsibility, it's moral responsibility. When it comes to legal responsibility you engage in a game and you attempt to win it by whatever legal means are open to you.

As for moral responsibility? The total would be 170 split 70 my mate / 100 to Bank & State.

The State have their own culpability in allowing a situation to arise where the Banks could lend recklessly. Then there is the State taking over the responsibility that used to belong to the Bank. Which is the States affair, not my mates.

Monty Burnz

antiskeptic wrote: »

I was suggesting that the Bank's responsibility isn't dissolved just because it's been shifted to the State.

The bank's responsibility was to provide your friend with the capital he used to buy the property. They fulfilled their responsibility. Your friend's responsibility is to pay the money back at the agreed rate over the agreed period. He is trying to dodge his responsibility.

I hate this notion that people like your friend were held at gunpoint by the banks and forced to sign contracts - total bull. He went to the bank and asked them for money. He did so to try to profit in future. Now his profit has turned into a loss and he's trying screw the taxpayer with the loss of his failed investment.

Totally shameful. Totally immoral and unChristian, whatever sophistry he tries to justify in his efforts to wriggle out of it. I'm astonished that you would support this sort of disgraceful behaviour rather then setting him straight on his responsibilities.

antiskeptic

D3PO wrote: »

I really cant understand how people expect to come on here and have others suggest how they can get around their financial responsibilities.

Its clear form youir opening post that your friend isnt in a situation that has him close to destitute but rather is trying to find the best way to limit his losses.

Indeed.

Some (like me) would take the view that he is carrying his share of the burden already and that he isn't the only responsible party. Such people might be able to furnish advice.

Monty Burnz

antiskeptic wrote: »

He's accepting responsibility alright. To the tune of about 70K. There's the issue of others responsibility to address however.

How does this patent nonsense relieve your friend of his responsibility? He heard these money salesman saying property was going to rise in value, and rushed to cash in. Your friend's greed was the problem. I don't see why we should pay for it.

Shameful, immoral, disgraceful.

D3PO

antiskeptic wrote: »

The State have their own culpability in allowing a situation to arise where the Banks could lend recklessly. Then there is the State taking over the responsibility that used to belong to the Bank. Which is the States affair, not my mates.

your logic is way off. there is no reckless lending without reckless borrowers.

if your friend couldnt self regulate thats his own tough luck.

You cant argue on one hand that others should be culpable when on one hand your saying your friend essentially bought this house with a fraudulent mortgage application indicating he had 70 grand saved when he didnt.

D3PO

antiskeptic wrote: »

Indeed.

Some (like me) would take the view that he is carrying his share of the burden already and that he isn't the only responsible party..

if you believe that geniunely tell your friend to go to court and use that as his defense as to why he shouldnt have to pay. :rolleyes:

apart form the fact your moral compass is way off. Legal positions trump moral ones every time.

Monty Burnz

D3PO wrote: »

your logic is way off. there is no reckless lending without reckless borrowers.

if your friend couldnt self regulate thats his own tough luck.

You cant argue on one hand that others should be culpable when on one hand your saying your friend essentially bought this house with a fraudulent mortgage application indicating he had 70 grand saved when he didnt.

Yes, I forgot this. If there were any justice he'd be done for fraud and lose both of his homes if he tries to steal money from pensioners, the sick and schools because his 'one way bet' went the other way.

This is symptomatic of the materialist, 'me first', amoral, greedy attitudes of the bubble period.

antiskeptic

Monty Burnz wrote: »

The bank's responsibility was to provide your friend with the capital he used to buy the property.

It's also the banks responsibility to lend responsibly and the dog in the street is agreed that they didn't lend so. Irresponsibility brings with it penalites. The State also has a responsibility to protect it citizens from the irresponsible actions of vested interests. It is simplistic to suppose that folk should be exposed to any and all enticement the response to which would ultimately be "well they made their own bed".

I hate this notion that people like your friend were held at gunpoint by the banks and forced to sign contracts - total bull. He went to the bank and asked them for money. He did so to try to profit in future. Now his profit has turned into a loss and he's trying screw the taxpayer with the loss of his failed investment.

My mate did it to profit. The Bank did it to profit. The State did it to profit. Nobody was held anyone at gunpoint. All gambled. All should share in the loss.

Totally shameful. Totally immoral and unChristian,

Christ didn't have a lot to say on matters financial but one of the things he did say was that you should pay Caesar what Caesar is due. This debate concerns precisely what Caesar is due.

antiskeptic

D3PO wrote: »

your logic is way off. there is no reckless lending without reckless borrowers.

Or reckless borrowers without reckless lending. Or reckless either with reckless governance. You've a circular argument containing three parties.

D3PO

antiskeptic wrote: »

It's also the banks responsibility to lend responsibly .

no it isnt. We dont do non recourse loans. If we did then it would be the banks responsibility but thats not the case.

D3PO

antiskeptic wrote: »

Or reckless borrowers without reckless lending. Or reckless either with reckless governance. You've a circular argument containing three parties.

bank made a decision on your friend based on 70 grand he declared as savings that were borrowed as a home imprevement loan. its not reckless to lend based on fraudulent information besides which your friend can pay which supports the agrument that the bank didnt lend to him recklessly.