Assuming a Mortgage

Tanveryen

Hi this will probably cover a multitude of different 'thread' departments. Hopefully someone can help me here!

A friend of mine has found himself in the unfortunate position of having his home repossessed.

As I understand it he has mortgage arrears on the property, in addtion to c£40k of debt from a failed business.

He has been quoted c£14k to write off the debt. Which will leave him to pay of the £3k arrears and keep his home. Unfortunately, he cannot get his hands on this kind of money, and has been declared bankrupt.

He asked me if I could pay the debt and arrears off, retaining his house, which we could then sell. It has a £102k mortgage remaining, and is worth c£140k. This would pay off my costs and we both make a profit - potentially.

I am unhappy with this as it places my money at considerable risk, with a small return at the end should all go well.

I want to propose the following:-

I pay off his arrears and the debt, and give him a cash payment of £7k. Total cost £25k.

He signs his house over to me.

I remortgage the house using the equity in it, and pay off the costs detailed above.

This will almost remove all risk to me, and he gets something out of a situation that currently has no up side for him.

I wondered how 'do-able' all this is?

Thanks in advance.

chambta

I wouldn't go near it at all.

HAMISH_MCTAVISH

Tanveryen wrote: »

Thanks in advance.

Why not just let the house get repo'd?

The bank must sell it at market price, and refund your friend the difference.

The only downside is it may get claimed by the bankruptcy folks....

Jenniefour

In a falling house market you would be taking a hell of a risk, not only on the property decreasing in value but on your friend being able to afford to pay you the market rent. And it's not a good idea to increase your debt to remove debt from your friend - all the risk goes over to you and it's your friend who is in difficulty. Unless, of course, you really do have lots of money and would not be in the least affected if it all went south financially.

I agree with McTavish - much better for your friend to be repo'd - with no debt and risk to yourself. If he has already been made bankrupt then the process has already started - allow it to carry on and find other ways to support your friend which do not put your own finances at risk - or your friendship. Although it will seem an awful prospect to face now he will then be in a position to start over again. You are obviously a kind person - but please do not use your kindness in ways that could have negative repercussions for yourself in the future. And, if your friend thought about it, I don't imagine he would want you to do anything that would create problems for you either. And he may be so stressed by all this that he can't really think straight at the moment.

And, if you're in a position to say goodbye to a couple of thousand then give him that to help get him on his feet again when it's all over. That's what I would do for a really close friend.

DVardysShadow

You need to consider what happens if he goes bankrupt. Your involvement to save the property for your friend might be viewed as a dodge for hiding some of his assets. If that view is taken, the Official Receiver and the courts have substantial powers which could leave you well out of pocket.

I think Hamish is probably right on this one. If you let it go to repo and buy it then, it will put you at arms length. I think your friend would do well to try and sell - the effort may give him more time.

JQ.

You're mad. You're proposing to lend money to someone who has proved they are incapable of paying debts.

If there was so much equity in the house, why did you friend not sell it and clear all his debts. Probably because it's not actually worth £140k or he has debts he's not told you about. I can understand you wanting to help your friend, but this has disaster written all over it.

Say you do get the house - what if he refuses to leave or pay any rent? When you do finally get him evicted, what if he trashes the house?

tyllwyd

I don't understand why you want to do it in such a complicated way. Why not just offer to buy the house from him and then if you are totally confident that he will be a good tenant, rent it back to him?

Jenniefour

tyllwyd wrote: »

Why not just offer to buy the house from him and then if you are totally confident that he will be a good tenant, rent it back to him?

I'm not so sure that's a good idea either - if the friend is in as much trouble as the OP says - and it's possible there could be more debt as well - then why put a good friendship at risk if the friend then can't pay the rent? What happens if the friend can pay the rent but wants to move at some point in the future? Would OP be able to recoup all his money if he chose to sell the property - that's very questionable in the current economic climate, where it may take many years for any significant recovery in property prices, and there may well be further drops before recovery is consistent and continous.

I think this very much depends on how much surplus cash OP might have available - if he has plenty and will be Ok if the worst were to happen without putting his own/family financial future at risk then he can make a judgement about whether or not to step in based on the strength of the friendship alone. But I imagine that's not the case or OP wouldn't have posted. Essentially, he's trying to assess the possible future financial risk - very wisely. What might look like a relatively easy solution now could turn out in the longer term to create problems. As many posters on here have found out - after they have taken irrevocable action, based on what they thought was an uncomplicated solution in the past, and with big problems now staring them in the face - simply because at the time they made certain assumptions which turned out to be far from accurate, or they didn't accurately predict other possible future scenarios.

Tanveryen

Many thanks for your swift responses.
I should clear a couple of things up, having now spoken to my friend regarding this and been updated on the situation.
He currently has c£40k of debt, and a court has placed 'charges' against his property to secure a proportion of this debt of c£19k.

My proposal now is to deal with the receivers direct and make an offer on the house that would clear the outstanding mortgage and be favourable to the other parties in terms of settling the now secured loan against the property.

Whilst I am in this process trying to help him out, with the potential of being in a position to share some cash from this horrible process, and give him a head start getting back on his feet. I am not doing it without some advantage to myself.
I am possibly simplifying this, but with the current lending situation, I would be looking at a £24k down payment on a house worth £144k at 80% LTV.
If I can get a mortgage for £120k on this propery, given its value which I know is a fair assessment, then I am in essense, buying a property without having to find a large deposit.
I don't propose to let it back to him, as I don't feel it would be appropriate, a fresh start would be better for all imo.
Currently the receivers are looking at the posibility of an auction of this property, which may not realise as much as my offer, and as such it should be attractive to them.

Thanks again.