Father Bankrupt - Can children buy out family home?

Nowlz

This is my first post so apologies in advance. At this stage I'm really just looking for pointers to what I need to be looking into.

My farther has recently been force into Bankruptcy, both as a director and as an individual. He has met with the receivers and it was made clear that his share of the equity in the house would need to be paid to the creditors.

My mother who is joint owner of the house is not bankrupt and so only my fathers share of the equity in the house is required.

Now my parents who are both in their mid sixties, remortgaged the property to try and shore up my fathers failing company so there is very little equity remaining.

My estimates -
The Mortgage is for £160,000
Property value is £180,000
Fathers share of equity after Fees - £7000-£8000

Before all this happened me and my partner were talking about buying a second property as a Buy-to-let as we have some savings and our monthly outgoings are quite low.

Not wanting my parents to lose the house, I wanted to see what our options are to try and help them out but not lose our savings in the process.

My thoughts so far have been -
* Could we transfer my fathers stake in the mortgage to me and pay the receiver his share of the equity (bearing in mind it would be my second mortgage)
* Could my parents sell the property to me at a reduced price (i.e the mortgage price) as long as the receiver gets their share of the agreed equity and then essentially my parents would become my tenants

Any advice would be appreciated and if you need more info just ask.

TheGardener

You will need professional advice but generally - yes. You can make an offer to the Official Receiver to buy your fathers interest in the property. It is a negotiation so don't offer top dollar to start with. Its a fairly simple and common process.

Your parents can not sell the house to you at less than the market price.

Nowlz

You will need professional advice but generally - yes. You can make an offer to the Official Receiver to buy your fathers interest in the property. It is a negotiation so don't offer top dollar to start with. Its a fairly simple and common process.

The thing I can't wrap my head around is how that would work in practice, buying a share in a property with an existing mortgage in place?

Would the mortgage provider consider transferring the joint mortgage in my father and mothers name to myself and my mother? Or would it be treated like any other property sale, with associated fees and stamp duty, where by I'd have to apply for a second mortgage with my mother?

MEM62

Nowlz wrote: »

This is my first post so apologies in advance. At this stage I'm really just looking for pointers to what I need to be looking into.

My farther has recently been force into Bankruptcy, both as a director and as an individual. He has met with the receivers and it was made clear that his share of the equity in the house would need to be paid to the creditors.

My mother who is joint owner of the house is not bankrupt and so only my fathers share of the equity in the house is required.

Now my parents who are both in their mid sixties, remortgaged the property to try and shore up my fathers failing company so there is very little equity remaining.

My estimates -
The Mortgage is for £160,000
Property value is £180,000
Fathers share of equity after Fees - £7000-£8000

Before all this happened me and my partner were talking about buying a second property as a Buy-to-let as we have some savings and our monthly outgoings are quite low.

Not wanting my parents to lose the house, I wanted to see what our options are to try and help them out but not lose our savings in the process.

My thoughts so far have been -
* Could we transfer my fathers stake in the mortgage to me and pay the receiver his share of the equity (bearing in mind it would be my second mortgage)
No. You cannot 'transfer' a mortgage. You can pay off the old one and have a new one in you and your mother's name but that may have complications as, for you, it is not a standard residential mortgage. (Based on the fact that you are not living there)
* Could my parents sell the property to me at a reduced price (i.e the mortgage price) as long as the receiver gets their share of the agreed equity and then essentially my parents would become my tenants
Again, problematic. As a bankrupt, there is no way that your father can liquidate his assets to a family member at a knock down price. No way will the OR accept that.

Any advice would be appreciated and if you need more info just ask.

You may be over-thinking this. The fees will be higher if the OR wants to force a sale and realise your fathers equity. These higher fees reduce the potential equity that you father has and it may therefore be less than the £8,000 figure you have quoted. It may even be below a level that makes it worth the OR pursuing it.

Let the situation run it's course and see what figure the OR puts on your father's share of the house. You will be better positioned to look at your options at that stage.

silvercar

All the OR is interested in is getting your father's share of the equity. They aren't bothered whether it comes from your mother remortgaging, a gift from a family member or a generous neighbour.

You could offer to pay the OR the necessary amount and the property could stay in your parent's ownership. Or you could register a charge on the deeds that say the amount is a loan to be repaid when the property is sold.

I agree with the previous poster, if there is not much equity then you don't need to rush it. It may be that the OR will consider it not worth pursuing.

Minkym00

Your father’s equity is £10k. Ignore what you think are fees at this point as the actual fees for the OR are £8k and the Insolvency Practitioner (that would deal with the sale) are far more than that. £10k equity is not enough to force a sale. They would need £20-30k for that.

enthusiasticsaver

I am not sure the OR will force a sale for just £7000 of equity so I would not rush to step in on this.

To change the mortgage into your name would also mean changing the ownership of the property which means the OR would need to agree to that. Taking a joint mortgage out with your mum may be problematic because of her age (some lenders won't lend past 70 and some will not accept interest only which I am guessing this is now) and it would have to be buy to let which means you would need to put usually a 20% deposit down. That means you would have to reduce the mortgage before taking it on.

Mouse007

TheGardener wrote: »

Your parents can not sell the house to you at less than the market price.

I think they can. The bankruptcy complicates matters but does not prevent it. The OR should be agreeable if any deal ensures they receive half of the market price equity.


It might help to understand the operation of law here. Don’t mix beneficial interest with the mortgage obligation, they are completely separate issues.

On your father’s bankruptcy his beneficial interest (and only his beneficial interest) in the property automatically belongs to the OR. This make no difference to the mortgage which remains in your parent’s names. The rights of the mortgage company, secured on the property, remain exactly the same as before the bankruptcy.

Your father can no longer be required to pay the mortgage, but if it is not paid the mortgage company can exercise their rights to repossess and sell.

The OR can sell the beneficial interest, free of any mortgage obligation, to a third party. This again makes no difference to the mortgage. The obligation to pay remains with your mother regardless of who ends up owning the beneficial interest.

If the OR finds no willing third party they can force a sale to receive the funds. The mortgage will then be paid off and the net proceeds split between the OR and your mother.

Alternatively the OR can place a charge (which attracts interest) on the property to collect when it is eventually sold.

To buy the beneficial interest you can just make an appropriate offer and, if it is accepted, sign the relevant legal documents to effect a transfer.

Nothing changes re the mortgage, you acquire no legal obligation to pay it. You just acquire half the beneficial interest and therefore the right to half the net sales proceeds in due course.

Minkym00

Mouse007, the OR won’t force a sale though as there isn’t enough equity. AA secured loan against property is always paid before anything else. The OR appoints a Insolvency Practitioner as trustee to effect a sale, and with only £10k available, no IP will touch it as that won’t cover their costs.

Mouse007

Minkym00 I didn’t say they would, but they can and that decision is purely a financial decision. I agree under £10,000 they probably won’t, but they have 3 years to play and in that time the equity may go up enough.

The OP needs to know however that if they choose not to forces a sale they can apply for a charging order which locks the beneficial interest to the OR after 3 years and includes an annual charge of 8% interest. Long run that could be costly and should be avoided.

Best to buy the beneficial interest first if possible and leave other matters (sale to family / mortgage questions) until after the deal is done.

Hardly_Quim

I will keep it simple. I have been bankrupt myself and been in a similar position. Don't be worried, the IP will just be looking to cover their fees. If it's the OR, they are just paid a wage.

If you have savings offer to pay £2000 in full and final settlement - believe me, they don't go looking for work. It will be too much hassle to enforce. The may put a charge on the property if you don't pay something. They threaten a lot but rarely follow through.

Don't forget your figures assume you would get the asking price if it were to be sold?, less agents fees? £2500? and legal work £700 - I would say £2000 is generous?