If house sold in negative equity, how to pay back lender?

Flearoy

Related to another thread I've posted on here (thank for your help folks).

If a mortgage holder in negative equity were to find themselves unable to repay their mortgage due to unemployment, would it be possible for them to sell their home and give the entire proceeds to the lender, and to make arrangements to pay the outstanding balance at a later date, or in such a situation, would the lender force repossession and/or bankruptcy?

I'm still named on the mortage on the former marital home with my ex. My ex pays the mortage on her own and has done since we split. We've got an agreement (part of the divorce) that I have no financial interest in the property, so no gain of any future equity for me. My ex has agreed that she must get me off the mortgage within a set time of the end of our fixed deal (18 months from now). If she's unable to remortgage on her own for whatever reason, or with a new partner, then she's obliged to sell the house, pay the lender and thus release me from the mortgage.

Of course, in a negative equity situation, the lender will come for the full shortfall from us both, i.e. me if my ex cant pay, I understand that. But my problem is that should this happen, I've got no means of making up the shortfall immediately. In a year or so I may be able to get a loan to cover a small shortfall (5 to 10k, the most I'd anticipate if my ex lost her job now and the above described happens).

Has anyone any experience of this sort of thing happening? Do lenders sometimes allow you to repay the oustanding balance on a sale in 'instalments' or is repossession/bankruptcy the only way.

New Year New Worries!

kingstreet

During the sale process a deal would need to be made with the lender. They have the power to refuse to release the charge over the property leaving you unable to offer the property without encumbrance to the purchaser.

In a nutshell, unless you make a deal with the lender, a sale for less than the mortgage debt will simply not be allowed.

What kind of deal you might be able to strike...

... who knows?

RenovationMan

Your mortgage lender will only allow you to sell the house when all monies are in place with your solicitor. The only way to get out of a house with negative equity is to make up for any shortfall with a bank loan and deposit this with the solicitor who is doing your conveyancing.

When the solicitor receives the monies from the house sale and bank loan and provided it covers the mortgage (and the legal fees!) then the solicitor will transfer the money to the mortgage lender and the sale is complete. If there is nothing in place to cover the shortfall then the sale will not go through.

The only other way out for you would be to go bankrupt and then you won't be accountable for the shortfall and you can effectively walk away from the house and any other debt you may have. However, there are some major financial implications involved with this, so not something to enter into lightly.

Flearoy

Thanks for your advice and information.

Well I guess I'll have to see what someone will pay for the house at the end of the deal to see if the ex (or I) can afford to sell it in the event of a shortfall, but that's next year so who knows what the market will be like?

Cheers