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Can/Will banks write off a 2nd charge as a bad debt if no equity in property?


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Hi

Does anyone know if banks can write off a 2nd charge against a property as a bad debt if there is no equity in the property without repossessing it ?

Or in order for them to get the debt written off do they have to repossess.

 

HSBC currently have a 2nd charge on our house due to an old business loan, they are now going for repossession, however, our mortgage lender will obviously get their money from any sale first leaving nothing or very little for HSBC.

We are fully up to date with our mortgage payments but our business account has been in dispute for 4 years now.

So if there is no equity in the property can the banks write this off as a bad debt without repossessing our house?

Has anyone had any similar experience or could anyone shed some light on this for me.

 

Many Thanks

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Hi Determined1,

 

A bank can write a debt off any time they like, that's down to their own decision making process. As to whether they are likely to write a debt off, that's another matter.

 

I would say it's highly unlikely that a second charge holder would agree to write off a debt even if there was no equity in the property at the time. Property prices change and, even if there is no equity now, there may be in future so there would be little reason for them to write the debt off. Even after possession most secured creditors would continue to pursue any shortfall sustained rather than write the debt off, they have 12 years from the date of the last acknowledgement of the debt to try and recover their losses so although their prospects of recovery might not be good in the immediate aftermath of the possession, over 12 years those prospects might improve.

 

Creditors generally are very loath to write debts off and will only tend to do so if they are legally unable to pursue them, e.g. due to statute-bar or the borrower going bankrupt, or if the borrower has some very tragic circumstance such as a terminal disease (and even then they probably wouldn't if they thought there would be money in the estate).

 

I should just clarify that I use the term written off to mean when a creditor agrees not to pursue a borrower. Writing off for accounting purposes is entirely different and a creditor may class a debt as written off for accounting purposes but have no intention of releasing the borrower from their obligations.

 

Hope this helps clarify matters.

 

KC

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  • 11 months later...
Hi

Does anyone know if banks can write off a 2nd charge against a property as a bad debt if there is no equity in the property without repossessing it ?

Or in order for them to get the debt written off do they have to repossess.

 

HSBC currently have a 2nd charge on our house due to an old business loan, they are now going for repossession, however, our mortgage lender will obviously get their money from any sale first leaving nothing or very little for HSBC.

We are fully up to date with our mortgage payments but our business account has been in dispute for 4 years now.

So if there is no equity in the property can the banks write this off as a bad debt without repossessing our house?

Has anyone had any similar experience or could anyone shed some light on this for me.

 

Many Thanks

 

The bank can and will write off, you will have to make an offer and back it up with valuations and the like, you need a meeting with them, I was in the same position, no guarantees but worth a try.

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