Is repossesion the best option?

wassup2

The details below are entirely fictional and any similarities to any persons I know are entirely coincidental and unintentional!

Okay, the story so far.
Once upon a time about 6 years back, a young naive couple go round several houses and then buy one after being told buy virtually everyone that houses are a safe bet and they need to get on the housing ladder as soon as possible. Their mortgage adviser even told them that he could fix things so that they could borrow more than they really should have on paper. The advice they got was to over reach themselves as this would be good in the long run. So they bought their first place for 180000 and lived quite happily for several years and got some kids etc. So now they have an interest only payments of 9000 per year and still have to pay the capital of 180000. The flat opposite is a bit nicer and is on the market today at 90000. So their negative equity is around 90000. The advice I am giving them is as thus based on him earning less
than her:-

1) They should have the mortgage transferred into his name.
2) He should take out unsecured loans under his name only as well as credit cards etc. preferably from the same mortgage broker.
3) She should buy the flat opposite; possibly using the unsecured loans as a deposit.
3) Once she has bought flat opposite then he should stop paying his mortgage and other loans including credit card etc.
4) They should then rent his flat out, whilst still not paying the mortgage on his old flat. The money earned by him should be used to pay her mortgage off whilst interest rates are still low.
5) She should continue paying the mortgage on their new lower priced but equivalent flat. All the money he earns should be used to pay off the her flat.
6) He should continue to hold onto his flat for as long as possible without paying any more money towards it.
7)Eventually the banks will repossess the flat maybe after 18 months or so and the tenants will be kicked out. He will be declared bankrupt and not be credit worth for sometime and maybe able to negotiate his way out after a year or so (remember he has no assets and no cash as he gave it all to his partner).
8)If they have saved enough by not paying the mortage on his old flat and by using the rent money that came in through his old flat then with a bit of luck she will have enough money to go to the auction and by his old repossed flat at the price they should have paid some 8 years ealier before the banks, mortgage advisers, estate agents etc colluded in making them pay a price much higher than should off or could afford to do so.

So before this process after 20 further years they would ended with a flat for which they paid 180000 plus interest; after this process they would have a similar flat for 90000 plus half the interest they would have paid and in addition they would have bought back their old flat at a sum considerably less than 90000 as at auction properties usually fetch 80% of market value.

Of course I withdraw the above advice unreservedly if it is anyway illegal or detrimental to their wealth.

It is perhaps morally wrong if not illegal to take out loans without any intention of paying them however let me know your thoughts.

Xiderpunk

There is no 'perhaps' about it, it is totally unethical and as far as I can see fraudulent. How do you propose that the mortgage can be transferred solely into his name without him re-mortgaging the property based on his earnings solely. It is a joint commitment and you would find removing one party is a darn sight harder than you have considered.

Everything you have suggested is wrong on both ethical grounds and in fact practical grounds and should somebody attempt to defraud in this manner then they deserve a prison sentence. Hope that clears things up for you.

Thrugelmir

wassup2 wrote: »

The details below are entirely fictional and any similarities to any persons I know are entirely coincidental and unintentional!

Okay, the story so far.
Once upon a time about 6 years back, a young naive couple go round several houses and then buy one after being told buy virtually everyone that houses are a safe bet and they need to get on the housing ladder as soon as possible. Their mortgage adviser even told them that he could fix things so that they could borrow more than they really should have on paper. The advice they got was to over reach themselves as this would be good in the long run. So they bought their first place for 180000 and lived quite happily for several years and got some kids etc. So now they have an interest only payments of 9000 per year and still have to pay the capital of 180000. The flat opposite is a bit nicer and is on the market today at 90000. So their negative equity is around 90000. The advice I am giving them is as thus based on him earning less
than her:-

1) They should have the mortgage transferred into his name.
2) He should take out unsecured loans under his name only as well as credit cards etc. preferably from the same mortgage broker.
3) She should buy the flat opposite; possibly using the unsecured loans as a deposit.
3) Once she has bought flat opposite then he should stop paying his mortgage and other loans including credit card etc.
4) They should then rent his flat out, whilst still not paying the mortgage on his old flat. The money earned by him should be used to pay her mortgage off whilst interest rates are still low.
5) She should continue paying the mortgage on their new lower priced but equivalent flat. All the money he earns should be used to pay off the her flat.
6) He should continue to hold onto his flat for as long as possible without paying any more money towards it.
7)Eventually the banks will repossess the flat maybe after 18 months or so and the tenants will be kicked out. He will be declared bankrupt and not be credit worth for sometime and maybe able to negotiate his way out after a year or so (remember he has no assets and no cash as he gave it all to his partner).
8)If they have saved enough by not paying the mortage on his old flat and by using the rent money that came in through his old flat then with a bit of luck she will have enough money to go to the auction and by his old repossed flat at the price they should have paid some 8 years ealier before the banks, mortgage advisers, estate agents etc colluded in making them pay a price much higher than should off or could afford to do so.

So before this process after 20 further years they would ended with a flat for which they paid 180000 plus interest; after this process they would have a similar flat for 90000 plus half the interest they would have paid and in addition they would have bought back their old flat at a sum considerably less than 90000 as at auction properties usually fetch 80% of market value.

Of course I withdraw the above advice unreservedly if it is anyway illegal or detrimental to their wealth.

It is perhaps morally wrong if not illegal to take out loans without any intention of paying them however let me know your thoughts.

More holes in your proposal than a sieve. Totally unworkable.

Xiderpunk

Further comments in-line:

wassup2 wrote: »

The details below are entirely fictional and any similarities to any persons I know are entirely coincidental and unintentional!

Okay, the story so far.
Once upon a time about 6 years back, a young naive couple go round several houses and then buy one after being told buy virtually everyone that houses are a safe bet and they need to get on the housing ladder as soon as possible. Their mortgage adviser even told them that he could fix things so that they could borrow more than they really should have on paper. The advice they got was to over reach themselves as this would be good in the long run. So they bought their first place for 180000 and lived quite happily for several years and got some kids etc. So now they have an interest only payments of 9000 per year and still have to pay the capital of 180000. The flat opposite is a bit nicer and is on the market today at 90000. So their negative equity is around 90000. The advice I am giving them is as thus based on him earning less
than her:-

1) They should have the mortgage transferred into his name.

You can not transfer a mortgage absolving one signatory to it. You need to re-mortgage based on current valuation and income requirements of the individual.

2) He should take out unsecured loans under his name only as well as credit cards etc. preferably from the same mortgage broker.

.. So with no intent to pay back, that is fraud.

3) She should buy the flat opposite; possibly using the unsecured loans as a deposit.

No can do, the source of deposit money is carefully checked by solicitors these days and can not be backed by loans as the money is not yours, it is just debt.

3) Once she has bought flat opposite then he should stop paying his mortgage and other loans including credit card etc.

Why should he stop, he put his signature on the agreement to say "HE WILL" repay the capital he borrows plus interest. Are you suggesting he de-fraud the lenders and his word as a man is worthless?

4) They should then rent his flat out, whilst still not paying the mortgage on his old flat. The money earned by him should be used to pay her mortgage off whilst interest rates are still low.

So also plan to screw over paying tenant, nice.

5) She should continue paying the mortgage on their new lower priced but equivalent flat. All the money he earns should be used to pay off the her flat.

6) He should continue to hold onto his flat for as long as possible without paying any more money towards it.

Squatting perhaps?

7)Eventually the banks will repossess the flat maybe after 18 months or so and the tenants will be kicked out. He will be declared bankrupt and not be credit worth for sometime and maybe able to negotiate his way out after a year or so (remember he has no assets and no cash as he gave it all to his partner).

Yeah good luck with that.. sigh

8)If they have saved enough by not paying the mortage on his old flat and by using the rent money that came in through his old flat then with a bit of luck she will have enough money to go to the auction and by his old repossed flat at the price they should have paid some 8 years ealier before the banks, mortgage advisers, estate agents etc colluded in making them pay a price much higher than should off or could afford to do so.

Ah, contact the police in this case as the couple were forced, yes forced to sign into an agreement. Or was it that they were fools, and agreed to borrow more than they can afford?

So before this process after 20 further years they would ended with a flat for which they paid 180000 plus interest; after this process they would have a similar flat for 90000 plus half the interest they would have paid and in addition they would have bought back their old flat at a sum considerably less than 90000 as at auction properties usually fetch 80% of market value.

Of course I withdraw the above advice unreservedly if it is anyway illegal or detrimental to their wealth.

It is perhaps morally wrong if not illegal to take out loans without any intention of paying them however let me know your thoughts.

Xiderpunk

Look I sympathize with the couple in question, however looking to shift responsibility elsewhere is a fools errand.

Purchasing a house or flat is an investment. Like all investments, the price can go up or it can go down. The couple knowingly entered into that investment (understand that advice is just that, advise.. it may not prove correct). So their flat is worth less than the mortgage they currently have, well in that case they have a choice, either continue to live in the flat for a few more years until the property market improves where they may actually make some equity. Alternatively they can hand the keys back to the lender and walk away to the rental market. Getting re-possessed whilst a viable option is not one to take lightly, it will exclude the couple from home ownership for at least six years and perhaps longer as very few sub-prime lenders will lend to a repossession case these days.

Therefore whilst being sympathetic, it is not the best situation to be in but not necessarily the worst. They live in a flat where I take it they can afford the repayments, those repayments are likely comparable or less than paying rent so why not stick it out until housing market picks up.

tommie1shunt

Seeing it is the financial system that got us all in to the mess we are in now, and the people responsible don't seem to suffer the same level of pain as Joe Average, I personally could not give a damn if you shaft them, they have shafted us thats for sure. It seems to me nowadays if your an Honest Joe, pay your tax's, bills on time there is long line of people waiting to shaft you, from some scumbag online waiting to clone your credit card, to some financial house who want to sell you investments that don,t work for you but work for them.
Only fools and horses work, how true.

pararct

The reason behind your intention is understandable if not entirely honourable.
Lets not forget no legal sanction was ever made against the so called corrupt financial advisor (who committed fraud within a system most people little knowledge about) and the banks who lent the money without proper due diligence in the interests of chasing fast and substantial bonuses and yet today are still permitted to chase and bank those same bonuses.

The short answer is very little can be done to improve this situation other than issue warnings to other young couples not to fall into the same trap.

In my opinion this is not a question of property values recovering those dizzy heights seen back then as for the reasons you have outlined in your first post a bubble existed, that same bubble has now burst. It will be quite some time very possibly a decade or more before values hit the same figures although with a fundamental difference. Sterling is being systematically devalued through inflation, the reasons for this are many and varied but mainly lead back to the Billions printed into the economy by quantitative easing.

It is true to say that these debts are slowly but surely being inflated away and many people will see that as a good thing. What they don't understand is the huge damage it is doing to the UK economy and jobs as a whole in the process.

MrMichael

So whats the plan when the flat purchased for £90,000 is only worth £60,000 in 3 years time?

MacMickster

The OP's idea is probably a good way to get a free roof over his head - at Her Majesty's Pleasure.

abankerbutnotafatcat

Firstly, I have a lot of sympathy with people in this position - it must put a real strain on everything. But it is only a paper loss - they have a roof over their heads and 2 incomes with which they can continue to pay the mortgage and over the long term house prices should recover. A home is primarily that, not an investment. Hopefully, they are able to start repaying some of the capital which will, of course, reduce the interest especially if they fix in now.

My main point for writing - please don't be harsh with me if i'm sat here in my SE England bubble, I may be a banker but not in property and i've been out of the country for the past seven years - have house prices in some areas of the country really fallen by over half since 2006 (the flat worth half what they paid is stated to be nicer) ???

GDB2222

As has been pointed out, this is not practicable, because step 1 in the process won't work. The real question the OP should be asking is whether BOTH of them should become bankrupt and start again? Unless they do that, they are both on the hook for the £180k mortgage. Bankruptcy means they eventually come out of this with nil net worth, compared to the present position where they have negative net worth.