Mortgage bailout question

waveyjane

My brother and his wife are sinking into debt and things look increasingly unlikely that any of their business plans are going to pull a rabbit out of any hats. 

We're not talking bankruptcy yet I don't think, but my mother has suggested that in order to relieve them of one of their biggest problems - their mortgage - then she might buy their house and put it into her name and charge them say a £1 a year rent. 

She could also leave the house to him in her will as well I suppose. She's in fairly good health so with luck will be on the scene for about another 10 years though.

We should probably take some legal advice, but as a basic proposition, does this idea have legs?

Annisele

Does your mother have enough cash to do this? (If she's wanting to take out a mortgage, it's a non-starter.)

If she does have enough cash, is there any particular reason she wants the house in her name? An alternative might be to lend your brother and his wife the amount they need to pay off their mortgage, and secure that loan on the house (effectively act as a private mortgage lender).

YBR

Does  Mother want to become a landlord, with all the responsibilities and costs that involves?

If Mother needs care, she may be obliged to sell their house to cover costs.

Will doing this clear current debt only to allow Brother and Wife to continue to live beyond their means?

Brie

As the others have said there's problems with your mom buying the house outright.  If she did and needed care it wouldn't be an issue if the rent was income but there definitely would be a problem if she needed council support for her care and was getting only £1 a month for a rental.  And there's all the other landlady things she'd need to do as well to be compliant.  Too much hassle for someone who is likely elderly.  My mom was a LL into her late 80s and it became a complete nightmare for both her and her tenants.

As I understand it if she was to lend them the money and put a lien on the house her situation would be much more clear.  But there may still be the issue of forcing a sale if she needs the cash.  Perhaps if the loan was being paid off properly it would put it back into the income category.  

But the major flag would be if Bro & SiL can stick to a reasonable budget in the future and pay Mom back.

waveyjane

Yes, it's definitely complicated. 

Annisele said:

Does your mother have enough cash to do this? (If she's wanting to take out a mortgage, it's a non-starter.)

If she does have enough cash, is there any particular reason she wants the house in her name? An alternative might be to lend your brother and his wife the amount they need to pay off their mortgage, and secure that loan on the house (effectively act as a private mortgage lender).

She has enough, and putting the house in her name means it's out of reach of any of my brother's creditors (should bankruptcy happen). That's also why she wouldn't pay off their mortgage.

YBR said:

Does  Mother want to become a landlord, with all the responsibilities and costs that involves?

If Mother needs care, she may be obliged to sell their house to cover costs.

Will doing this clear current debt only to allow Brother and Wife to continue to live beyond their means?

While they would theoretically be tenants, what costs would be incurred by my mother? They'd pay for maintenance, etc. Your other points are good ones and we'd have to consider both.

Keep_pedalling

waveyjane said:

Yes, it's definitely complicated. 

Annisele said:

Does your mother have enough cash to do this? (If she's wanting to take out a mortgage, it's a non-starter.)

If she does have enough cash, is there any particular reason she wants the house in her name? An alternative might be to lend your brother and his wife the amount they need to pay off their mortgage, and secure that loan on the house (effectively act as a private mortgage lender).

She has enough, and putting the house in her name means it's out of reach of any of my brother's creditors (should bankruptcy happen). That's also why she wouldn't pay off their mortgage.

That is not going to fly, the mortgage company won’t allow it. Your brother would also be sitting on a pile of cash so his creditors would take that instead.

YBR said:

Does  Mother want to become a landlord, with all the responsibilities and costs that involves?

If Mother needs care, she may be obliged to sell their house to cover costs.

Will doing this clear current debt only to allow Brother and Wife to continue to live beyond their means?

While they would theoretically be tenants, what costs would be incurred by my mother? They'd pay for maintenance, etc. Your other points are good ones and we'd have to consider both.

To start with she would need to pay stamp duty on the purchase with an addition 3% for purchasing a second home. She would also be responsible for the upkeep of the home. 

if she wants to help she could always pay off the mortgage with a loan and protect her cash with a charge placed against the property.  

Sea_Shell

How do you feel about all this?

Are you happy that your Mum is potentially risking her own financial future, in bailing out your Brother?

Is this the first time the Bank of Mum has offered to step in, or is there a history of 'help'?

Is this a genuine offer, that's come from Mum, or has your Brother been dropping not so subtle hints, and 'persuading' her to do this?

Have you sat down as a family and gone through a Statement of Affairs to see if the situation is as bleak as they've said it is?   Have they REALLY, nailed down their own monthly income and expenses yet....and made the necessary cut backs?

What if your Mum needs the money she gives away?   How will she get her money back?    

You say she has enough cash, but what % of her available cash does it represent?   10%...90%

Are there Grandchildren to consider here, or just 2 adults that have got themselves in a pickle?


I'd suggest that Mum doesn't do anything just yet, until the above have all been thoroughly discussed and hammered out, and only then as a very last resort.

WYSPECIAL

Probably worth posting a statement of affairs on the Debt Free Wannabe thread so that their budget and debts can be looked at.

How much equity does your brother have in his house, will this be enough to clear other non secured debts?

How long will the arrangement continue? We don’t know ages etc but your mum could end up subsidising your brother and his wife by whatever the local rental rate is for years. Is that the intention  or is this just to get them back on their feet?

If the plan is that upon her death the house will pass to your brother she will also need to update her Will.

sheramber

waveyjane said:

Yes, it's definitely complicated. 

Annisele said:

Does your mother have enough cash to do this? (If she's wanting to take out a mortgage, it's a non-starter.)

If she does have enough cash, is there any particular reason she wants the house in her name? An alternative might be to lend your brother and his wife the amount they need to pay off their mortgage, and secure that loan on the house (effectively act as a private mortgage lender).

She has enough, and putting the house in her name means it's out of reach of any of my brother's creditors (should bankruptcy happen). That's also why she wouldn't pay off their mortgage.

YBR said:

Does  Mother want to become a landlord, with all the responsibilities and costs that involves?

If Mother needs care, she may be obliged to sell their house to cover costs.

Will doing this clear current debt only to allow Brother and Wife to continue to live beyond their means?

While they would theoretically be tenants, what costs would be incurred by my mother? They'd pay for maintenance, etc. Your other points are good ones and we'd have to consider both.

Your mother would need a tenancy agreement and landlord insurance - normal house insurance would not cover a rental property.

If their finances are in a bad way will they have money for maintenance etc?

What prospects are there that their financial position will improve ?

She also need to consider the implications if your brother still ends up bankrupt, as in certain circumstances the Official Receiver can take court action  over the sale of items to avoid them being included as assets.

Your mother needs to tske legal advice before she does anything.

Has your brother contacted one of the debt agencies such as Stepchange for advice?

Jude57

waveyjane said:

Yes, it's definitely complicated. 

Annisele said:

Does your mother have enough cash to do this? (If she's wanting to take out a mortgage, it's a non-starter.)

If she does have enough cash, is there any particular reason she wants the house in her name? An alternative might be to lend your brother and his wife the amount they need to pay off their mortgage, and secure that loan on the house (effectively act as a private mortgage lender).

She has enough, and putting the house in her name means it's out of reach of any of my brother's creditors (should bankruptcy happen). That's also why she wouldn't pay off their mortgage.

YBR said:

Does  Mother want to become a landlord, with all the responsibilities and costs that involves?

If Mother needs care, she may be obliged to sell their house to cover costs.

Will doing this clear current debt only to allow Brother and Wife to continue to live beyond their means?

While they would theoretically be tenants, what costs would be incurred by my mother? They'd pay for maintenance, etc. Your other points are good ones and we'd have to consider both.

Just to point out that the transaction could be seen as deprivation of assets by the Official Receiver if Bankruptcy eventually happens. The OR can, and will, reverse property transactions they deem to have been made to put assets out of the reach of creditors. The OR will also take a dim view of under-value rents. The OR has seen every tactic you can dream up to avoid paying creditors what they are owed and they absolutely do use their powers. They have teeth, as Boris Becker discovered.

If the business your brother is operating isn't financially viable, it's better to pull the plug sooner rather than later, if only for the benefit of the creditors, never mind his own stress levels. He should (if he can be persuaded) speak to Business Debtline:

https://www.businessdebtline.org/

He should avoid any organisation offering to 're-schedule' his business debts. These are likely to be salespeople for Individual Voluntary Arrangement companies. While an IVA may turn out to be the best advice for your brother, it's not the right solution for everyone and Business Debtline will give free, impartial advice. If your brother and his wife also have personal debts, the Debt Free Wannabe board here is a fount of advice and support in dealing with them. They could also speak to StepChange:

https://www.stepchange.org/

Again, avoid fee-charging debt advice companies. There's plenty of free, impartial debt advice and support available. The Stickies at the top of the Debt Free Wannabe board gives contact details for trusted organisations.

waveyjane

Jude57 said:

Just to point out that the transaction could be seen as deprivation of assets by the Official Receiver if Bankruptcy eventually happens. The OR can, and will, reverse property transactions they deem to have been made to put assets out of the reach of creditors. The OR will also take a dim view of under-value rents. The OR has seen every tactic you can dream up to avoid paying creditors what they are owed and they absolutely do use their powers. They have teeth, as Boris Becker discovered.

Interesting. Bankruptcy has not in fact been discussed, but only inferred by me listening to him list their debts and other problems. So I suppose the biggest risk with this idea is that if it doesn't manage to bail them out of their current situation and they then have to declare bankruptcy after all. For all I know, the OR might punish my mother in some way too.