Advise for a friend desperately needed; relationship split and neg equity!

MurrayMint

Hello All,

Can I pick your knowledgeable brains about how best to advise my friend, who's in a difficult position?

She ended a relationship last summer (8 year relationship, v. short marriage, in retrospect shouldn't have gone ahead) and she is in a new relationship with a guy who was a close friend of the couple. As you might expect, there is plenty of bad feeling from her ex's side and a lot of guilt on her part. There are no kids involved and she's in her 20's.

The current situation is that she is living with relatives, really wants to rent her own place and start to re-build life (not rush into living with new guy). The ex does not want to communicate with her, but they co-own a property that he is currently living in. The house was bought a couple of years ago, but is now approximately £30k in negative equity. Their mortgage was £800ish per month, but they've now switched to interest only, so the payment is bit under £600 per month.

Their mortgage lender won't lend either of them individually the funds to buy one another out.

To help with the costs, the ex has taken in a lodger (mutual friend, who is probably now loyal to the ex and not her). The lodger is paying £350 pcm, which covers bills as well.

At the moment she is paying £550 per month into a joint account, which is her contribution towards the mortgage and bills that she might be liable for i.e. water, council tax etc.

If she's to be able to move into her own place, she needs as much money as possible, but wants to be fair to her ex.

What do you think she should be contributing to the property?
The CAB advised the ex that the lodgers rent is for bills and a small bit towards mortgage and the rest should be split between her and ex. But then she's not living there and the ex is, so why should it be 50/50

There are other costs more directly associated with the mortgage, such as Life Assurance (£120 pcm joint policy :eek:) which they're also splitting 50/50. I've said that Life cover is waaayyy too high, but she's worried about taking out her own and cancelling that, then he might not take out new cover and she'd be up the creek if anything were to happen to him.

Her guilt is keeping her paying, but she also can't move on.

I am concerned that without a fair resolution, he could stop paying mortgage (as she does not have access to the information - i.e. post goes to the property, not her) and end up forcing a repossession and she be left blacklisted with a great big debt.

TBH I right now she would happily walk away with £15k of debt to repay, if it was all over now. But that worse case scenario would take a long time and also affect her future credit capability, which seems very harsh.

Is there any kind of way to split ownership of a property and it's mortgage, so that if 1 half defaults, the other in not liable? I don't think there is, but am hoping there's something I haven't thought of!

Or, is there anyway to sign away the flat to him, walking away without liability?

She does need legal advise, but the CAB etc are inundated at the moment and she doesn't know where to trun.

Any advise to help this situation would be gratefully received!!

Many Thanks :T

~Beanie~

I think she should definately be paying half the mortgage but none of the other bills! If she isn't living in the property, the bills are the responsibility of her ex (and his lodger) and are nothing to do with your friend anymore.

Is there any kind of way to split ownership of a property and it's mortgage, so that if 1 half defaults, the other in not liable? I don't think there is, but am hoping there's something I haven't thought of!

Or, is there anyway to sign away the flat to him, walking away without liability?

No there isn't unfortunately. If the lender wikll not agree to the ex taking over the mortgage on his own then your friend can't just walk away without liability - she will be jointly and severally liable for the mortgage debt.

angelpye

Hi, Rights of Women is a charity in London that provides free legal advice over the phone. It's run by solicitors volunteering their time so can be difficult to get through to but worth the wait usually. (For women only)

Also, going half on morgage and morgage related costs (insurance) is fair at the moment but I would be making calculations about the income from the lodger - whatever is more than the bills goes towards the morgage and in my opinion should be split. I would not be paying council tax or any other bills as not living there (apart from the bills that are from when I lived there) not liable for council tax and I would remove my name from utilites as still liable if they run up debts. The morgage company should be able to write to her at her new address and him at his as in both names and she is legally entitled to that information. Failing that any post that is for her she can have redirected to her new address by paying a small charge at the post office.
This is only my opinion and I am sure others 'in the know' will be along soon!

angelpye

Also, its worth checking with rights of women that if he starts messing around and not paying - could he be forced to pay or hand over occupation in order to protect her investment until the market recovers. Ok, dating a close friend isn't a course for harmony but he can't hold all the power - she needs to get information and take control.
If he starts ruining her credit it will effect her for years. Also if he gets nasty she can get injunctions to protect her and anyone else involved.
If he stops paying as she is already paying £550 (!) towards it there shouldn't be too much to be covered if she took control.

Jaggers_2

Couple of points. Why pay the money into a joint bank account? The mortgage company know that they are not living together, so why can't she pay it directly to them? If she puts the money into the joint account, he might just take the money and spend it. Does she know if she is liable for any council tax? If so only pay that portion of it.

The lodger and the ex should cover the bils between them.

Lastly, the insurance. That cover is way to high. What type of insurance is it? She needs (as it is interest only mortgage decreasing will not cover it) to take out level term assurance for the duration of the remaining mortgage. This can be done on a 'life of another basis'. This means that although he is the assured, she has legal and beneficial ownership of the policy. He croaks it she gets the money (on production of a death certificate which she can get from the Office of National Statistics). She also pays the premiums. He does however need to sign the health declaration when setting it up. He may also want to take out one on her on a similar basis. If he does not pay the premiums on the policy on her life so what? By the time it becomes payable she will have snuffed it and not really care about the mortgage!!!

Hope this is of some help!

MurrayMint

Thanks Beanie and Angelpye

I'll pass on that number to her.

I was just talking to someone here and we talked through different scenarios and ended up agreeing that it might just be better to walk away from the property i.e.
- declare that she won't pay and it should be sold at a loss and she take on half of the remaining debt
- or he find someone (maybe family) to buy her out and share a stake in the property with him
- or they both surrender it to the mortgage company for repossession?

That way, yes her credit rating is affected, but that is a common situation for many during these times and it is not for ever, but they can both start afresh without ties to each other. She can rent for a few years, then when the economy recovers (and she'll be earning well by then) she can look to buy in the future.

It may be callous, but she could pay for years and at any time he do the same to her and she still have debt. There is no way to stop him defaulting is there?

Am I wrong?

MurrayMint

Jaggers wrote: »

Couple of points. Why pay the money into a joint bank account? The mortgage company know that they are not living together, so why can't she pay it directly to them? If she puts the money into the joint account, he might just take the money and spend it. Does she know if she is liable for any council tax? If so only pay that portion of it.

The lodger and the ex should cover the bils between them.

Lastly, the insurance. That cover is way to high. What type of insurance is it? She needs (as it is interest only mortgage decreasing will not cover it) to take out level term assurance for the duration of the remaining mortgage. This can be done on a 'life of another basis'. This means that although he is the assured, she has legal and beneficial ownership of the policy. He croaks it she gets the money (on production of a death certificate which she can get from the Office of National Statistics). She also pays the premiums. He does however need to sign the health declaration when setting it up. He may also want to take out one on her on a similar basis. If he does not pay the premiums on the policy on her life so what? By the time it becomes payable she will have snuffed it and not really care about the mortgage!!!

Hope this is of some help!

Excellent Jaggers, thanks. I will def. tell her about the life cover, that hadn't occurred to me. I think she should pay the mortgage company separately too, but then I've just posted about possibly defaulting

MurrayMint

angelpye wrote: »

Also, its worth checking with rights of women that if he starts messing around and not paying - could he be forced to pay or hand over occupation in order to protect her investment until the market recovers. Ok, dating a close friend isn't a course for harmony but he can't hold all the power - she needs to get information and take control.
If he starts ruining her credit it will effect her for years. Also if he gets nasty she can get injunctions to protect her and anyone else involved.
If he stops paying as she is already paying £550 (!) towards it there shouldn't be too much to be covered if she took control.

We are genuinely concerned that he might stop paying. She very much needs to take some control. In theory he could have missed months of payments and she wouldn't know! He hasn't, because she just got a statement or something, but it was the first in a long time.

I think because she wants to get set up on her own, she doesn't feel like she's settled, so hasn't redirected post etc. She has changed her single bank account address, but I don't know what she's done about council tax etc.

The friend thing...:o I know, she knows, we all know. But, she shouldn't be paying through guilt forever. Relationships break down, but she's not responsible for keeping a roof over his head. Oooh, it's all so messy and awkward. And not easy to fix and be fair to everyone!

Jaggers_2

Just a thought. When did they buy the property?

Regarding defaulting and possibly letting the property be reposessed. From a personal point of view I would be concerned that;

a) it will shatter her credit rating

b) She will be left with a debt of approx £15,000 (although liable for £30,000 if her ex refuses to pay) Hell of a lot of debt to take on to break ties with someone (for £30,000 I'd live with John Prescott. Seperate beds. I'm not that skint!). Paying that lot back may cost her more per month than contributing to the mortage.

c) She needs to take a view on the market. Could she loose more by staying or will the property rise and in 4 or 5 years time as she is still paying that £30k the property is now worth some £30 grand more than her mortgage? She is therefore £60k down!

kimmi_b

Wow her ex must be chuffed, raking in £850 a month towards mortgage and bills! She should pay exactlly her half of the mortgage and nothing else. She is no longer occupying the property so isn't liable for utilities or council tax as long as relevant organisations are aware of it (i.e. make sure she is taken off the Electoral Roll for that property). She should make the payments for mortgage by standing order into either the joint bank account (which I would consider closing in case an overdraft is applied for, approved and run up) or directly to her ex to prove that she is making the payments as required.

If

MurrayMint

Jaggers wrote: »

Just a thought. When did they buy the property?

Regarding defaulting and possibly letting the property be reposessed. From a personal point of view I would be concerned that;

a) it will shatter her credit rating

b) She will be left with a debt of approx £15,000 (although liable for £30,000 if her ex refuses to pay) Hell of a lot of debt to take on to break ties with someone (for £30,000 I'd live with John Prescott. Seperate beds. I'm not that skint!). Paying that lot back may cost her more per month than contributing to the mortage.

c) She needs to take a view on the market. Could she loose more by staying or will the property rise and in 4 or 5 years time as she is still paying that £30k the property is now worth some £30 grand more than her mortgage? She is therefore £60k down!

Fair points. They bought a couple of years ago, possibly at the peak in this area. They bought at around 100% and the mortgage stands at 115k. The property is now valued at 85k. I don't know how long it will take for this type of property to regain that value in our area?

What if she paid for 4 years, the value didn't recover to positive equity and then he defaulted. If the mortgage company still wouldn't lend her enough, she could loose the property, have paid for years, without living there and still be liable for the debt. I know that's worst case scenario, but there seems no way of safeguarding against the actions of the other.

She really needs that legal advise!