Mortgage shortfall post-bankruptcy - what is our status?

[piemanpete]

My wife and I entered into bankruptcy in Dec 2009. We have since been discharged. Our house in Essex was mortgaged with Bank of Scotland and also has a secured loan with Picture Finance. At the time of bankruptcy our house was rented out (without formal approval of BoS - it's a long story - we were committed to relocate to Norfolk but couldn't sell), although we had given the tenant notice. She has been trying to buy the property ever since for 240k , with our (reluctant) agreement - the house was valued at 320k in 2008 and we bought it for 250k in 2004 and have since added an off-street parking area for 4.5k which we also landscaped for several more k. This strip of land was not mortgaged and has a separate title. It is now a bone of contention as the OR wants some money for it separate to the asking price of the house. The former tenant thinks it should be included for a nominal sum (£1). The mortgage is now around 265k (was 252k before default) with all the interest and other creative charges that BoS have been able to load onto it. The Picture Loan still stands at around 72k - was orignally 75k.

I have heard about mortgage shortfalls and lenders being able to pursue borrowers years later for the money - I've also heard about deeds of assignment , although not yet mentioned by BoS or Picture. I understand that secured debt survives bankruptcy but if we are ever to get our lives back we can't have 1,000s of £ hanging over us indefinitely. We're in our 50s with no savings and I am self-employed and currently earn practically nothing. My wife's good salary is taken up with supporting us and servicing an IPA with another two years to run. My understanding of Picture's debt is that it would become unsecured once we became bankrupt and it was clear that there was insufficient equity in the house to pay off BoS and them, at which point it would go into the bankruptcy and effectively be written off or at best repaid pro rata by the IPA at the OR's discretion. Can anyone tell me what the situation is and what our options are? I read somewhere that the mortgagee can only pursue us for the shortfall if we sign a deed of assignment because we are bankrupt. If we refused to do this, what would happen?

 

I hope you have enough information to help but if not happy to answer any other questions.

Thankyou.

[Mr lex]

Hi Pieman,

 

Welcome to the Consumer Action Group 8)

 

I am going to move this post to the bankruptcy forum, I think you will get more help there.

Please bare with us, it might take a couple of hours.

 

Lex

[sequenci]

Hello there.

 

Any mortgage and secured loan shortfall should be dissolved within the bankruptcy once the sale has completed. You are absolutely correct that some lenders will try and get you to sign a 'deed of acknowledgement' which gives them the right to chase you for the money once the bankruptcy has completed. DO NOT SIGN ANYTHING!

 

The strip of the land is indeed a contentious issue and you must NOT sell it at undervalue (you could get in a world of trouble for doing this with the OR). What they are after is to see if they can get any money out of the land to distribute amongst the creditors and the trustee. You may wish to see if the OR would like to take control and deal with the selling of it themselves?!?

[piemanpete]

Thanks for the reply and for moving the query to the correct forum - much appreciated.

 

We feel more reassured by what you have said, sequenci, and we definitely won't be signing *anything* from the mortgagee!

 

We wish the OR would take over the sale of the house as every query from solicitors is a painful reminder of what we have lost, but the OR has never seemed interested. If the sale to the tenant falls through then the mortgagee will take possession at last and it won't be our problem anymore.

[debtinfo]

I think the main point here is that the OR is never going to takeover the sale of the property if it is in negative equity which it is. The mortgage company will likely not agree to any sale because of the negative equity and so that really only leaves repossession, which is done my the mortgage lender not the OR.

 

the seperate land is seperate and valueble and so is an asset in the bankruptcy. That should be left to the OR to deal with, they can keep hold of it indefinitally and could sell it to whoever eventually gets the property after repossession

[debtinfo]

In the meantime the rent should be going to the OR, this will also help the mortgages decision to reposess, as has been said as long as you dont sign anythng, any shortfall will go into the bankruptcy

[piemanpete]

Tenant stopped paying rent - with our agreement as we knew we would have to enter IVA or go bankrupt when we gave her notice in Nov 2009, so she has saved over 11k since while the sale draaaaagggggggs on. Maybe the OR will go after her for back rent?

 

Good to get further confirmation that shortfall will go into the bankruptcy - maybe we will get our lives back one day - thanks.

[debtinfo]

Has the mortgage company agreed to the sale? Sometimes the best thing to do is nothing, by trying to force a sale through you run the risk of making yourself liable

[sequenci]

we gave her notice in Nov 2009, so she has saved over 11k since while the sale draaaaagggggggs on. Maybe the OR will go after her for back rent?

 

 

That is a very distinct possibility!

[piemanpete]

The mortgage company has agreed to the sale. although the secured loan company has not. The mortgagee has invoked something called 'Power of Sale' so that the sale can proceed without the agreement of the secured loan co. Having said that, the mortgagee has agreed a price for the property which, as you can see from my initial post, is 10k less than we paid for the property *without* the strip of land that created the off-road parking, way back in 2004. If the house was still ours to sell, we would not be accepting such a low price, even in the current market. It's the low price that was worrying us about any future comeback from the mortgagee and the secured loan company, but others replying to this post seem to believe that won't be an issue, because of our bankruptcy. I sincerely hope they are right!

[ninjainthenight]

there is a lot of incorrect information above. However, this appears to be bad planning on the part of your bankruptcy administrator who probably could have set up a sequence of events to avoid all of this. in the normal course of events, you would allow a secured debt to go unsecured and THEN go bankrupt meaning it was a clean break so to speak.

as it currently stands this has not happened and bankruptcy probably should have been postponed until all your debt was unsecured. in all liklihood what will happen is the first mortgage company will enforce sale, they will take their balance, fees and charges and arrears and leave picture with a paltry amount meaining you owe the shortfall. Your picture account will automativally be unsecured and you will have a large unregulated unsecured balance. Perosnlly i would just tell them to f off and never pay as it is difficult to pursue as its their commercial risk and they will only received payment if you agree to it, or if they do an attachement of earnings. the other advice you will not want to hear is going bankrupt AGAIN!!

however, i would approach your previous receiver and see what he has to say about this as he may be able to wangle soemthing for you!!!

[sequenci]

there is a lot of incorrect information above.

 

which aspects?

 

probably should have been postponed until all your debt was unsecured.

Not at all. A bankruptcy can take place pre-sale or after sale, it makes little difference in the grand scheme of things - so long as the debtor doesn't sign a deed of acknowledgement any shortfalls that arise from a sale will be included.

[debtinfo]

yep i agree as long as the OP does not sign anything the the shortfall will fall into the bankruptcy, which is why it is best just to let it get repossessed rather than trying to push through a sale

[piemanpete]

Noted and thanks to all for input - much appreciated.

 

Well, the mortgagee agreed to the sale and paid for a valuation it accepted and is only using 'Power of Sale' because Picture has refused to agree to a sale - but what else can they (Picture) do? They would have to wait years for the house to rise again in value enough to pay them off as well, if it ever did. The sale as it stands will not produce even enough to pay off the mortgagee in full; there will be nothing for Picture at all.

 

The thought of having to go bankrupt again makes me feel very unwell - we made ourselves bankrupt last time and you know what that costs - we wouldn't have the money to do so again.

 

Surely Picture could not get an attachment of earnings while an IPA was in force? The OR would not allow it, surely, as it would affect what was being paid to all the other creditors? I dare not tell my wife that; she would have a nervous breakdown.

 

The sale of the house may yet fall through as the buyer doesn't want to pay extra for the unmortgaged strip of land. At that point the mortgagee would take possession - they already have a possession order but stayed it to try and negotiate a sale with the tenant, realising that a bird in the hand etc.

 

I have to say that Bank of Scotland, the mortgagee, has been *spectacularly* useless in dealing with this matter. I first wrote to them about our problems in Sept 09 and thereafter faxed and wrote to them four more times before we went bankrupt. They never replied once and have claimed never to have received any of our correspondence. Even as recently as yesterday they still don't have our present address on their system as our correspondence address, despite the fax and letters all clearly addressed. I faxed them *again* yesterday with a formal change of address because I am trying to get an interest cert out of them for my tax return, which I have asked for *three* times in the past two and a half weeks.

 

It's no wonder that HBOS went down in the banking crisis, on the basis of total administrative incompetence alone, never mind bad investment decisions!

Edited January 22, 2011 by piemanpete

[piemanpete]

OP?

[sequenci]

OP?

 

Original Poster, i.e. You!

 

[piemanpete]

Aha - thanks!

[sequenci]

Aha - thanks!

 

[Happyhippy1959]

just following this with some interest. At a point now where I may let my house go. Marriage gone after 20+ years wife and kids gone to rented accommodation. I owe £40,000 unsecured and am paying off at token rate of £1.00 per month. (10 creditors 16 accounts) I am up to date and have never missed a mortgage payment or Secured loan payment. Either slightly in neg equity or a little surplus £600 if sold. My dilemma is this. If I hang on in here and a creditor decides to make me BR I will have the house problem left i..e if it is sold or reposed after BR will any amount owing probably to SL creditor be chased or will it be included in BR.

 

Sequenci you seem to say as long as I don't sign anything it would drop into the BR pot. hmmmm is this correct. I am just getting my strategy together as I don't want to be left with a debt after BR, I think once is enough. The original lender will have no problem only owe them £73,000 it's the First Plus Muppets I am worried about.

 

I know ex is hopping up and down because the house is joint and she will be the one they come after. Sweet revenge for all the Cr*p she has caused me. So in a nutshell, if I am unfortunate to be made BR and am still paying for house I would could stop paying mortgage and SL immediately and then wait for repossession and count any shortfall into BR.

[sequenci]

Sequenci you seem to say as long as I don't sign anything it would drop into the BR pot. hmmmm is this correct.

 

Sure is.

 

If the house is given up, or repossessed then any shortfall on the mortgage would be included within the bankruptcy. Just don't sign that deed of ackonowledgement.

 

Also bear in mind that if the house is in negative equity then you *could* go bankrupt and keep the house. Just be mindful that the OR will look at the property after 2 years and 3 months to see if it is worth selling then (if you still have it of course)

[Happyhippy1959]

Thanks for quick reply,,,, that is just what I wanted to hear. Don't know if I would want to keep the house anyway,,,, its taking up 68.23% of my take home income. Just a quickly here, I really need to get straight on things like council tax etc. What if I missed one payment to the Mortgage company and First-plus do you think they would hit me with the big stick of repossession.?????? Would pay the arrears off at a rate I could afford. Really need to get me hands on a bit of cash.... I know it's naughty but I am really struggling this month, did not even pay me Council tax. Also could use this as a bluff to get ex to donate a bit of cash towards the SL....

[sequenci]

I'm sure going one month into arrears isn't go to hurt so long as you offer to pay a little extra going forward to catch up again.

 

Most lenders won't bring action until a good 2 or 3 months are missed, many of the high street have agreed not to take action until 6 months have been missed. I had a client the other day with 22 months worth of arrears(!)

[Happyhippy1959]

What I thought. It would help me to get straight as I was just telephoned in October by ex to say she had left the house and it was all mine. hmmmmmm Will phone them near the end of the month tell them I can't pay March's mortgage SL and offer to catch up on it at £50.00 each As you said what can they do short of charges and trying for a repo.

[Undercover-Elsa]

Hi,

Some companies will allow an arranged payment holiday of up to 3 months, with a slightly increased monthly payment and/or increased term.

Might be best to ask about that first. If you look at your mortgage agreement or on the company website it will tell you if this is possible, or their policy for helping in financial difficulties.

kind regards,

Elsa

[Happyhippy1959]

yes will check it out. Will make a decision shortly as to Bankruptcy it's looking the best option at the moment. Need to get a value on the house and go from there. Should either break even or a slight shortfall. Am going to chat with Girlfriend when she returns off hols next Monday. Will try and keep the house but hey ho I can't go on like this anymore.... As I said, it's not if I'm a spring chicken, 52, want to really make a clean start for the remaining. Won't be buying a house, don't want credit ever again so hey ho...