Can I safeguard my sister's stake in my house?

Crumbum

I'm trying not to go bankrupt, but in case one of my creditors bankrupts me I'd like to protect my sister's loans to me.

I have an investment property which has been a money pit. My sister has loaned me 70k for repairs and mortgage payments. This can be proven. 55k of this was from her remortgaging her home. But there's no contract between us and she's not on the deeds.

At the moment the house is partly rented and partly uninhabitable awaiting repair. The rent is about 250 per month less than the mortgage. My sister makes up the difference and there are no mortgage arrears. The property's value - 170k - is the same as the mortgage on it. But if you take my sister's loans into account it's worth 70k less than the borrowings.

I am in the process of giving my sister power of attorney because of my mental health problems. When this is done the mortgage lender will increase their loan by 10k, enough to make the whole house habitable and lettable. Edit: actually 10k would only make two of the three flats in the building habitable. There's a third flat which needs 30k+ spent on it. But even with two of three flats let the building would generate a small monthly surplus. My sister proposes that I should keep it for the long term (under her management) in the hope that rising values will one day allow me to pay her back.

BUT I have another 150k or so of unsecured debts, no assets and am unable to work. My income is 65 quid a week ESA. My creditors don't know about my investment property. The Land Registry site suggests that they could find out about it if they got a court order to search the records. If they do they could get a charge on it or bankrupt me. Either of these actions would scupper my sister's chances of getting her money back. What can I do? Rightly or wrongly I want to pay back my sister even if my other creditors never get a penny.

The unsecured debts are nearly all to banks: credit cards, overdrafts and left over mortgages after other investment properties were repossessed.

There's also 8k council tax arrears on the one remaining property. I'm trying to get the council to wait until the property is making a surplus. They wouldn't gain anything by bankrupting me because all the proceeds from the sale of the property would go to the mortgage lender. But maybe they can't wait? Don't they have a legal obligation to collect arrears within a certain time limit? Might this force them to bankrupt me?

freddy911

Basically she is an unsecured creditor and will be delt with as such, and as you have no assets this means she will get nothing, as for the property the OR will find out about it and you are obliged to tell the OR, if you dont tell them they can give you a BRO of upto 15 years.

freddy911

The council are known to bankrupt people for CT arrears also.

Ineedaname

Oh my goodness you need to take some advice from one of the free debt advice charities. If needs be, get your sister to either go with you to the CAB, or speak to one of the others on the phone. Until she has power of attorney you may have to speak with them briefly to confirm your sister has your permission to discuss your financial affairs on your behalf. Obviously before you do anything your sister will need to have gone through all your financial paperwork and know exactly what's going on.

IF you go bankrupt then the official reciever will probably take the rent from your property and you therefore wouldn't be able to keep up the mortage repayments so would lose the house anyway.

Because of your sister's investment in the property you might be able to sort something out whereby she legally has beneficial interest in the property. At least then the OR should only be able to take your proportionate amount of the rent.

Crumbum

Thanks for all the replies. Establishing a beneficial interest sounds sensible. But really I have to work on not being bankrupted in the first place. Assuming I can get the council to wait I doubt that any of my creditors would think it worth their while, as I live in a slum furnished entirely from Freecycle and my credit file looks appalling; masses of defaults and an unsatisfied CCJ. Does it help to give my creditors info about my poverty, e.g. benefit letters and bank statements? My largest debt is 47k, and the bank has passed it to debt collectors. What might they do? They've got nothing to gain by taking me to court have they? I can't see the court giving them a share of my 65 per week benefits. Maybe they'll just wait in the hope that I get a job one day so they can get a share of my earnings?

Ineedaname

Unfortunately, they either want payment or resolution so they can close the file. They will pursue and hassle you endlessly before they stump up and make you bankrupt. All except the council who are most likely to go down the bankruptcy route sooner rather than later.

So you could have years of stress ahead of you and be no better off at the end of it.

You really need to seek professional advice as suggested above. These debt charities can help you manage your debt at the very least. If your sister is fully aware of your financial situation then she may more readily accept your potential need to go bankrupt and the inevitable loss of her own money in the process.

At the very least it could be beneficial to your health and her concern for your health...

Crumbum

She knows everything and we get on very well, thank god.

What's to stop me selling the place to her? (Assuming the lender would go along with it and give her a very, very high LTV.) It would be in their interests because she is very creditworthy, has a good income, already collects the rent, pays the mortgage and does all the communicating with the lender.) Then I could just be bankrupted without much pain, and she would have no future risk of having my creditors force the sale of the house or get a charge. The receiver wouldn't be able to argue that I'd done anything unfair - given that I have zero equity in the house I would just sell it for the market value, pay off the mortgage and have zero left over to pay off my debts.

Ineedaname

It sounds like a good idea, but I would take advice on this first. Even though there is no equity, you are still disposing of a potential asset and would obviously need to declare it to the OR.

It's the fact you would be paying off the mortgage that might be a sticking point I guess.

dojoman

As long as the house is sold at market value you should be ok, however if you sold it below MV then you could be in trouble. On the forms it asks about property you have disposed off in the last 5 years.

bobbingalong123

She would need to apply in the bankruptcy including both you and the OR/Trustee as Defendants. She would need to apply for a declaration of interest under the Trust of Land and Appointment of Trustees Act 1996. He interest would be a beneficial interest pursuant to a implied constructive trust.

However you describe it as "a loan". It cannot have been a loan to enable her to succeed in such a claim. Her contributions must have been on the basis of her detrimental reliance on your promise that she would get an interest in the house in return.

A loan is NOT a beneficial interest in the property. It's a loan, and has no connection to the property itself.

Crumbum

Thanks, that's very useful.

Why do creditors bankrupt people who have nothing? They end up losing money on the legal bills. What's the point?