Mortgage bailout question

sheramber

If the OR reverses the sale she loses the house and the money she paid for the mortgage.

it might never happen but she needs to be aware of all possible consequences.

RAS

They won't punish your mother but they will rescind the sale and she will bear any financial losses. That applies to any form of Insolvency.

They will punish your brother if he continues to run an insolvent business to the detriment of his creditors or disposes of assets to avoid losing them. The Insolvency Practitioner will investigate and can issue a BRU or BRO. That extends the length of restrictions on his future financial activities and can stop him from running another business for up to 15 years. If he doesn't comply or argues against, this can go to court for enforcement. That's why Boris Becker ended up in trouble.

waveyjane

OK thanks - all very helpful.

BTW sorry if I was unclear: when I said their business plans weren't coming up with much, I didn't mean they were running businesses, just looking to set them up (or at least get some paid employment). The bankruptcy element was personal bankruptcy, not business receivership. 

Anyway, we'll take take some legal advice on all this so we'll see how that goes. Some initial discussion re. for example asset deprivation and whether their lender will allow the sale look like those might not be obstacles in fact (depending on their equity in the house and further investigation into their circumstances).

MEM62

While they would theoretically be tenants, what costs would be incurred by my mother? 

Admin - gas safe cert, electrical cert, STA and all the other obligations of a landlord.  She would also be liable for CGT on any increase in the properties value.    

TBagpuss

As others have said, there are a lot of potential pit falls here. 

The better option, if you mum has the money available, and assuming that your Brother has some equity in his house, would likely be for her to loan them some moneys secured against the house.

This means that she avoids the problems of potential deprivation of assets, as she isn't given the money away. It avoids her becoming a landlord, which carried significant legal obligations which she can't just agree to opt out of, it should protect her as she would have her loan secured against the house, so it would be paid back out of any sale proceeds after any first mortgage but before any unsecured debt (or debts secured after hers was registered) , so if your brother did become bankrupt, she should get her money back even of other creditors don't.

She could provide in her will either for the loan to be offset against his share of her estate (in other words, either he gets less by way of inheritance and the loan no longer has to be repaid, or he gets his share of inheritance in full and can use it to clear the debt) Of course, if she wanted, your mum could also write her will to provide that the debt was forgiven on her death, and could chose not to reduce his inheritance!

I suspect that a loan is safer from the perspective of any bankruptcy - your brother is not hiding or giving away assets so the transaction isn't to try to deprive creditors of their due,  and if the aim in borrowing some money was either to pay off some of the debts or to reduce the main mortgage to free up some income to allow him to pay debts, those .

You mum would definitely need to get proper advice about the legal and tax implications, and possibly to update her will at the same time.

Finally, while it i her money, and her choice, ideally she should be considering how and why they are in this situation. IS t genuinely something they are going to b able to recover from -e.g. is the debt issue caused by bad luck such as illness and redundancy, where the breathing space created by her help will let them get themselves sorted out, or is it more the result of long term issues / living above their means, in which case, hard though it is, some tough love might be kinder in the long run, whether that's offering them a loan, secured on the house, but with a firm agreement that it will be paid off within a set period or the house sold if not, or  and agreement to lend them some money but with strict conditions (such as both of them finding jobs even if they are not their dream jobs, sharing their budget and getting help to cut spending, or whatever might help then get to a point where they can live within their means and start to pay down the debt.

They might find that talking to Stepchange and looking at options like an IVA might be better options for them long term - if they keep to the agreed terms they shouldn't lose their home, and your mum could offer practical help like buying them a load of groceries or offering to cover the cost of a modest break, from time to time, and someone outside the family can be the one that talks to them about cutting their spending ! 

RogerPensionGuy

TBagpuss said:

As others have said, there are a lot of potential pit falls here. 

The better option, if you mum has the money available, and assuming that your Brother has some equity in his house, would likely be for her to loan them some moneys secured against the house.

This means that she avoids the problems of potential deprivation of assets, as she isn't given the money away. It avoids her becoming a landlord, which carried significant legal obligations which she can't just agree to opt out of, it should protect her as she would have her loan secured against the house, so it would be paid back out of any sale proceeds after any first mortgage but before any unsecured debt (or debts secured after hers was registered) , so if your brother did become bankrupt, she should get her money back even of other creditors don't.

She could provide in her will either for the loan to be offset against his share of her estate (in other words, either he gets less by way of inheritance and the loan no longer has to be repaid, or he gets his share of inheritance in full and can use it to clear the debt) Of course, if she wanted, your mum could also write her will to provide that the debt was forgiven on her death, and could chose not to reduce his inheritance!

I suspect that a loan is safer from the perspective of any bankruptcy - your brother is not hiding or giving away assets so the transaction isn't to try to deprive creditors of their due,  and if the aim in borrowing some money was either to pay off some of the debts or to reduce the main mortgage to free up some income to allow him to pay debts, those .

You mum would definitely need to get proper advice about the legal and tax implications, and possibly to update her will at the same time.

Finally, while it i her money, and her choice, ideally she should be considering how and why they are in this situation. IS t genuinely something they are going to b able to recover from -e.g. is the debt issue caused by bad luck such as illness and redundancy, where the breathing space created by her help will let them get themselves sorted out, or is it more the result of long term issues / living above their means, in which case, hard though it is, some tough love might be kinder in the long run, whether that's offering them a loan, secured on the house, but with a firm agreement that it will be paid off within a set period or the house sold if not, or  and agreement to lend them some money but with strict conditions (such as both of them finding jobs even if they are not their dream jobs, sharing their budget and getting help to cut spending, or whatever might help then get to a point where they can live within their means and start to pay down the debt.

They might find that talking to Stepchange and looking at options like an IVA might be better options for them long term - if they keep to the agreed terms they shouldn't lose their home, and your mum could offer practical help like buying them a load of groceries or offering to cover the cost of a modest break, from time to time, and someone outside the family can be the one that talks to them about cutting their spending ! 

What a super post here.

Making a loan and putting a charge on the house is certainly what gets done a lot, this process gets done by people before going bankrupt to avoid selling property or whatever when the official receiver looks for cash, the actual loan could of been an accumulation of many many unrecorded cash transactions between people concerned and lots of legal paperworks being put in place. The official receiver is well aware of the above. 

However, all above is done needs to ensure the any legal paperworks are 100% proof, example person who loaned the money dies, then what happens to the loan charge on the house.

The above can be a minefield, expert legal advice is essential.

waveyjane

MEM62 said:

While they would theoretically be tenants, what costs would be incurred by my mother? 

Admin - gas safe cert, electrical cert, STA and all the other obligations of a landlord.  She would also be liable for CGT on any increase in the properties value.    

At the risk of asking a stupid question - can you explain why she would be required to do this admin if she isn't extracting a rent and/or the agreement they sign explains they are responsible for those things?

MEM62

waveyjane said:

MEM62 said:

While they would theoretically be tenants, what costs would be incurred by my mother? 

Admin - gas safe cert, electrical cert, STA and all the other obligations of a landlord.  She would also be liable for CGT on any increase in the properties value.    

At the risk of asking a stupid question - can you explain why she would be required to do this admin if she isn't extracting a rent and/or the agreement they sign explains they are responsible for those things?

Sure, no such thing as a silly question.  You stated "then she might buy their house and put it into her name and charge them say a £1 a year rent."  You have also stated that "they would theoretically be tenants".  

That makes her a landlord and she would not be able to avoid all of the responsibilities and risks that go with that.  The fact that she is renting to family, or that the rent is nominal is irrelevant.     

RAS

And in some instances failure to comply is a criminal offence, for others there are civil penalties.

Just to add, if brother does maintenance, he is making a payment in kind which reinforces the fact that this is a tenancy.

waveyjane

MEM62 said:

Sure, no such thing as a silly question.  You stated "then she might buy their house and put it into her name and charge them say a £1 a year rent."  You have also stated that "they would theoretically be tenants".  

That makes her a landlord and she would not be able to avoid all of the responsibilities and risks that go with that.  The fact that she is renting to family, or that the rent is nominal is irrelevant.    

Sorry, forget what I said about £1 rents, that was just me trying be clever. If she charges no rent, and has a contract with my brother stating he does the maintenance, I find it hard to believe she will be prosecuted for not having a gas safe certificate for her second home. But perhaps I'm wrong! Anyway, we're taking legal advice so let's see what comes about :-)