Complicated property / benefits situation

numbat

Hi,

I'm looking for advice on a fairly complicated situation involving debts, property and benefits.

I'll start by introducing the various parties as otherwise my explanation of the situation may get a bit confusing:

- I am 26 and live with my fiancee (T), also 26
- T's mother (we'll call her Mrs P) is in her early fifties and was widowed in her thirties. Her son (R, 22) still lives at home.
- T's younger sister (H, 24) recently married and moved out of her mother's home

Mrs P has been unable to work for 8 years due to severe back problems. She formerly worked as a care home assistant. She claims some benefits (I'm not 100% clear as to exactly which).

Mrs P lives in a mortgaged property (we'll call this Number 30), which I understand is currently on an interest-only mortgage and has been for some time. She has (probably) very little or no equity in this property.

She also owns her marital home (Number 40) outright. She moved out of this property following the accident in which her husband was killed, and has understandably never wanted to move back. The property was let to good tenants for 10+ years, but a subsequent tenant concealed a serious roof leak (amongst other problems) and it is now in a state of disrepair.

Previously, the rent from Number 40 paid the mortgage for Number 30, and the books just about balanced even after Mrs P was made redundant through ill health due to the back problems. Mrs P also had some lodge from H and R providing a small supplementary income.

However, the house of cards has now collapsed: the tenant had to be evicted leaving Number 40 requiring major repairs; H has got married and moved out; and R was made redundant last year and hasn't been able to find work since.

The process of everything going pear-shaped took a couple of years during which time, without my knowledge, T borrowed ~£15,000 on various credit cards in an attempt to stave off the inevitable. This went on, for example, a new roof for Number 40, plus new windows all round as the wooden frames of the old ones had rotten out. There was a serious case of ostrich syndrome here which T now very much regrets.

The upshot is that Number 40 ended up with a new roof and new windows, but needs gutting throughout. Mrs P is seriously struggling to pay her basic bills, and T and I are slowly paying off the credit cards, which are at least now on 0% deals (one of them was previously at 39.9%!).

Our house, which I bought last year, is mortgaged in my name only, as T's credit rating had taken a battering. It also needs some work, but is at least habitable. However, we have no hope of getting the work done on our own house unless we get back the £15k that T lent her mother.

Number 40 is, in its current state, probably not worth much more than the £15k. It's a small two-bedroom terraced house in a former coal-mining area where fully-modernised properties of a similar size are going for around £55-65k, and are tending to sit on the market a very long time first. If it could be sold, Mrs P would at least be entitled to some additional benefits - she currently loses out because Number 40 counts as an asset for means-testing purposes, even though it's not habitable. She's also having to pay half-rate council tax on it.

The best outcome I think we can hope for at this stage is that Number 40 could be sold. Mrs P could then get her full benefit entitlement and might be best advised to hand back Number 30 to the mortgage lender and move into an over-50s council flat. T would get any proceeds of the sale under £15k, and the rest (if any) would go to Mrs P.

However Mrs P has struggled to find a way to sell Number 40 - she can't afford to pay for valuations etc. or for auctioneers' listing fees.

So, we'd really appreciate any suggestions. Mrs P has consulted the council and CAB, and hasn't made much headway - their suggestion seems to be 'sell Number 40'. Well, yes.

One option we considered is for Mrs P to assign title in Number 40 to T, in settlement of the £15k debt. This would at least then mean that she isn't considered a homeowner from a benefits point of view.

If this was possible, T and I might be able to find a way to sell Number 40 - at least the time pressure would be reduced a bit. We could probably scrape together enough to get a proper valuation done, at least, and we might be able to tidy it up a bit more than we've done already. Of course, if we did get anything more than £15k back, we'd ensure this went to Mrs P as we're not seeking to profit from the situation, just to resolve it as quickly and painlessly as we can. But we don't really understand the legal position, or any tax implications (e.g. capital gains).

Any thoughts?!

Cheers, Numbat

Jowo_2

You should post the info on the benefits board where those members who have better knowledge may be able to help you.

You will need to identify the benefits that your MIL gets.

The Shelter charity has a good website, including info on how a home owners can prevent repossession - they have a home owners helpline. They have info on various govt schemes to prevent repossession.

You can see there that simply handing back keys to the mortgage lender doesn't mean the end of debt - the lender will continue to charge mortgage costs, plus interest, plus selling and insurance costs until sold (perhaps for much less than market rate via an auction) and then persue her for this debt.

You should also google 'deprivation of capital' and 'notional capital' and read the posts on this website about it. Basically, a person with capital cannot necessarily simply pay off debts unless there is a legal obligation to do so, or transfer assets to relatives, and then claim means tested benefits. If the DWP/local council/HMRC suspect that this has been done intentionally to qualify for means tested benefits (deprivation of capital), then they can treat the claimant as if they still have the capital (notional capital). What kind of formal proof does MIL have that she has a 15k loan with her daughter?

The benefits forum will have historic posts that provide links to the DWP decision makers guide which is the staff manual that provides info on how Deprivation of Capital is identified and treated. It's a complex area but at least that formal document will provide an idea of how DoC works.

There is a 'Debt Free Wanabee' board and the members there should be able to give both you and your partner advice on how to manage your debts, plus also come up with various strategies for your MIL to consider.

PasturesNew

Major thing here seems to be the expectation that without the house she'd get benefits. She wouldn't. She'd still be assessed as if she had sold it and was sitting on the money. This assumption would last for a long time (no idea how long, but months/couple of years).

Even if she sold the house and gave T the £15k, it'd be viewed in the same manner.

This is called: Deprivation of Capital, so google that and read up about it.

silvercar

You need to find out the size of the mortgage and the value of number 30.

If she has owned it for a long time there should be some equity in it.