Bankruptcy, house and divorce

Mel1984

Hi,
I'm after some advice if anybody has any experience
My husband (now separated) went bankrupt in November 2011, he is on the mortgage and deeds, can I get him off this? I understand the official receivers still have an interest in the property, but what does this mean? I am doubtful that the mortgage company would allow me to have the mortgage on my own however I could add my partner or my parents. My ex is not being very forthcoming with information.
Thanks for any help,
Melanie

Mouse1812

Is their any equity in the property? ie is the value of the property more than the outstanding mortgage?

Mel1984

Thanks mouse, I believe there is only about 10k. I am getting a valuation today to confirm

Mouse1812

Assuming the house was jointly owned, your ex's share now belongs to the OR.

That "share" is known as his beneficial interest "BI". If the equity is £10,000, then his share which now belongs to the OR is £5,000.

The OR will want to convert that into cash.

You, or a member of your family, can make an offer to buy this BI back from the OR. If you do not the OR will (for a lowish value like this) seek to put a charge on the property so that when it is eventually sold they get paid.

The OR leaflet explaining this is here

You can also read the OR's internal instructions here
In particular look at part 6 and then annex 2

Do note your offer does not need to be the full £5,000, you can discount this for the likely costs of selling, the objective is to pitch your offer to tempt the OR to accept because any alternatives (after costs) will give them less cash.

You will not however be able to remove your ex's name from the mortgage, but don't worry about that. You will own all the equity after buying it back from the OR.

Edit to add, just found this flow chart of what happens

from this page

kepar

You will not however be able to remove your ex's name from the mortgage, but don't worry about that. You will own all the equity after buying it back from the OR.

Mouse, so if 20 years down the line the house is paid for, all the money will belong to the OP.
So even if the couple were together and the spouse bought the BI and 20 years down the line they split up after the house had been paid for, all the money would belong to the one buying the BI.
Also what would happen if a friend or relative bought the BI would it eventually belong to them.
Can you confirm what would happen in these cases . Am I right in my assumptions, because that puts another dimension into buying back the BI. Who would you trust to buy it?

Mouse1812

Those entitled to the proceeds of sale are those who hold a beneficial interest in the property, whether they be the legal owner or not. It is possible to be a legal owner without having any beneficial interest. Likewise it is possible to have a beneficial interest without holding legal ownership. Most of us have both legal and beneficial ownership, but that gets broken on bankruptcy.

Beneficial Interest may arise from contributions (payments) made and agreements between parties. The courts will look at the amounts contributed to the purchase of the property and any evidence of common intention between the parties.

Before bankruptcy Mrs Mouse and I jointly purchased a property. She provided the deposit from her own funds. I met the mortgage repayments for some 10 years. So we both made financial contributions. On analysis you could argue one of us paid more than the other, however our “common intent” was clearly 50:50, even if we did not specifically talk about it.

On bankruptcy my BI went to the OR. Mrs Mouse bought that BI back. She then owned all the beneficial interest. However since then I have continued to pay the mortgage, in doing so I will argue (if I need to) that I am accruing a new beneficial interest in our home. Indeed if Mrs Mouse and I continue to be together I’m sure some common intent will give me back a 50% beneficial interest.

The OP on the other hand has an absent ex who will be making no financial contribution and the OP has (presumably) no intention of agreeing that he will entitled to a future share. No payments and no common intent = no beneficial interest.

So yes, even after 20 years and the mortgage is fully paid off, the beneficial interest (entitlement to sale proceeds) will belong 100% to the OP. She may however have to prove that, as on sale the presumption might be 50:50. The evidence will be the transfer deed from the OR and her record of meeting all mortgage payments thereafter. Important documents to keep safe.

On your point about "who to trust" I would advise you write up a short agreement, both sign it, to confirm any limits on the beneficial interest going forward. You could for example restrict it to the amount paid with no rights to increased value or interest.

tzagnasti

On a similar vein...
About 12 years ago my wife and i bought a second house and agreed to rent it to my mother at the rent equivalent to the mortgage cost alone. on signing for the purchase my mother offered to pay a deposit on the house because the bank were offering a significantly lower interest rate if the deposit was higher, thus it reduced the payable "rent" such that within a very short period the sum was made back. It was made clear that the extra deposit paid was freely given and did not give her any equity in the house, and this was signed for at our solicitors when the rent agreement was drawn up.
over the last 12 years we have made loans against the property to pay for repairs and updates. The monies raised has always been with my mothers consent and often at her behest, on one occasion to clear her credit card debts. The sums raised are very nearly the same as the original mortgage on the house and have not on any of the 3 occasions been wholly used for the improvement of the property. We however just let her get on with it since the "rent" went up to cover the costs. It was always the intention to let her stay until she passed away and we would sell up then and decide what to do with the proceeds then. There was never any intention to avoid Capital Gains Tax since it was a second property, however i never wanted to make a profit from my mother whilst she lived in the house so the rent was always to be what ever the mortgage came to.
When the whole thing was set up it was suggested by our solicitor that to avoid some potential for tax liability's (for income taxes) that the "rent" be paid directly into the mortgage account and not via our personal account. All communication came to our address and the deeds are in mine and wife's name. we have been paying the relevant insurances, since we are the owners. And even though my mother announced in October she could no longer afford to pay the rent we have managed to cover the extra payments out of our account. The house was put up for sale and my mother signed a paper to say she would vacate before the sale. well the house is sold and she is apparently to move out in the next couple of weeks, almost 6 months later.
Now it seems that she has been told that as she paid the "rent" directly to the mortgage account and not to us directly she has a claim on any profits from the sale of the house! Profit! the house was bought for £29000 had £23000 in extra loans raised against it (all of the monies given to my mother to pay for the repairs in a way that suited her) and cost us something like £4000 in insurances for it. it sold for £56000.
So my question, who owns the property and does my mother have any claim against it?

Mouse1812

tzagnasti wrote: »

When the whole thing was set up it was suggested by our solicitor that to avoid some potential for tax liability's (for income taxes) that the "rent" be paid directly into the mortgage account and not via our personal account.

And that is exactly why you should never trust a Solicitor to advise you on matters relating to taxation. While avoidance is legal, evasion is not.

Is your mother going to pursue her "potential" claim to a share of the profits?

tzagnasti

I am not sure...she says not, but she has pointed out to us that she could. She is also pleading poverty at the moment.....
My wife and i are somewhat reluctant to let her take any more money from the house as as it stands we have had not inconsiderable expense and risk for what is effectively a few thousand pounds at most. The sum of money left after the sale will be in the region of 14-15000 pounds and that's before the expenses of owning the property is taken into account, and before the taxes (if any are due) are paid.

Mouse1812

tzagnasti wrote: »

she has been told that as she paid the "rent" directly to the mortgage account and not to us directly she has a claim on any profits from the sale of the house!

By who?, was that informed legal advice or from a mate down the bingo hall?



Do some calculations keeping the Capital and Revenue expenditure separate. For example, the mortgage payments will have been mostly interest.

Revenue expenditure (interest, insurance, repairs) has gone.

Capital expenditure remains in the value of the property (which may have gone up or down).

As your mother had sole occupation she should have bourne all the revenue expenditure. What does she owe you from that? From the figures given, that should be enough to see off the Capital claim without having to go into any legal discussion on the matter.

tzagnasti

The advise came from a legal person (solicitor perhaps?) she went to see if there were any way she could speed up her claim from the local authority for housing. as a result of that meeting she was informed that her financial worries could be resolved by claiming an interest in the property. Because she was paying the "rent" direct to the motgage company and because the loan was set up as a repayment loan not interest only. this was on the banks advise at the time, as the mortgage was so small and my wife and i earned enough to pay the costs for two repayment mortgages at the time (on paper that is is) it is apparently the root of all our problems. it seems that because we bought the property on a repayment mortgage and not a specific buy to let interest only mortgage that the local authority decided that the property was not bought as an investment and rejected my mothers claim for housing benefit when she retired at age 70. (she kept working to get a better pension with her employer)