Whats The Deal With Negative Equity?

[Bott]

Alright excuse my ignorance...but what happens if you are forced to sell your house with a loss of say 40K? and you can't pay the difference? I ask because somebody on another thread a while back said that they still owed 50 K from the mid 90's but had managed to buy another house before the madness! This can't be right surely? Do mortgage companies write off any shortfall?

[Bluelady]

Alright excuse my ignorance...but what happens if you are forced to sell your house with a loss of say 40K? and you can't pay the difference? I ask because somebody on another thread a while back said that they still owed 50 K from the mid 90's but had managed to buy another house before the madness! This can't be right surely? Do mortgage companies write off any shortfall?

<{POST_SNAPBACK}>

No, they don't. Short answer is that you can't sell if you're in negative equity unless you can pay the balance on sale. Basically, you're b*ggered.

[munimula]

Alright excuse my ignorance...but what happens if you are forced to sell your house with a loss of say 40K? and you can't pay the difference? I ask because somebody on another thread a while back said that they still owed 50 K from the mid 90's but had managed to buy another house before the madness! This can't be right surely? Do mortgage companies write off any shortfall?

<{POST_SNAPBACK}>

I've brought this up previously and have been informed that you can't sell your house if it is worth less than you owe on the mortgage without paying the difference.

[zzg113]

what happens if you are forced to sell your house with a loss of say 40K? and you can't pay the difference?

A ) If you are in negative equity and you do not have the money to make up the shortfall between the market value of your house and the amount you owe, your mortgage lender will not allow you to sell.

B ) If the mortgage lender decides to repossess, they will chase you for the shortfall between what your house sold for and the amount that you still owe them. In the last crash, for many people, this amounted to tens, if not hundreds of thousands of pounds.

Do mortgage companies write off any shortfall?

Most of the time, no. Mortgage lenders can only chase you for 12 years for a negative equity debt:

http://money.guardian.co.uk/property/mortg...1277949,00.html

[Realistbear]

Alright excuse my ignorance...but what happens if you are forced to sell your house with a loss of say 40K? and you can't pay the difference? I ask because somebody on another thread a while back said that they still owed 50 K from the mid 90's but had managed to buy another house before the madness! This can't be right surely? Do mortgage companies write off any shortfall?

<{POST_SNAPBACK}>

Negative equity may explain the sudden emigration spike following the last crash of the 90's?

[VacantPossession]

Alright excuse my ignorance...but what happens if you are forced to sell your house with a loss of say 40K? and you can't pay the difference? I ask because somebody on another thread a while back said that they still owed 50 K from the mid 90's but had managed to buy another house before the madness! This can't be right surely? Do mortgage companies write off any shortfall?

<{POST_SNAPBACK}>

As far as I can gather, and this is based on the experiences of a friend of mine in Wales, you cannot sell a house in negative equity, at least not if the Building Societies have anything to do with it, unless you can show that you are capable of paying off the liabilities it produces.

This is why thousands simply handed in their keys in 1990-1994. Confronted by tens of thousands of pounds in negative equity and in some cases an almost doubling of their mortgage payments (interest rates at 15%) they had little choice since at the same time many of them lost their jobs.

The majority of those recipients of Thatcher and Lawson's legacy entered into an arrangement with their lenders to pay back at least some, if not all the liability. Statistically, few of them were actually made bankrupt. My Welsh friend is STILL paying off the shortfall to his building society, many years after he first handed in the keys.

In the case of extremely common endowment mortgages which were the fashion (indeed IMPOSED in some cases), a significant proportion of mortgagees suffered a double whammy, with negative equity increased by the shortfall created by the mis-sold endowments. Of course no single individual has been brought to justice for mis-selling, and even in civil terms the vast majority of endowment victims are as yet without justice, over a decade after the event.

Others posted their keys and ran. Many building societies pursued them, but for those they never caught, 12 years since the original liability was declared is the cut off point, and in some circumstances 6 years is the cut off point, beyond which one cannot be pursued and the liability ends.

VP

[Guest Charlie The Tramp]

You can still end up owing your lender if you sell your home when you have negative equity. You must pay back everything you originally borrowed even if the money from the sale doesn't cover the cost of your mortgage.

Your lender can still take legal action against you even after your home has been sold. This will affect your credit rating. It is unlikely that you will be able to:

get a new mortgage with a different lender, or

take out any other loans using your home as collateral.

You can sell your home in the normal way if you have enough savings to pay off the negative equity and the costs involved in selling. If you don't, it may be better to wait until property prices rise and your home increases in value. Your benefits may be reduced if you sell your home.

You usually need to get your lender's permission before selling. You may also need permission from other creditors if you have secured loans. It may be easier to get this if you have realistic plans to pay off everything you owe. For example, you are planning to sell personal belongings to clear your debts.

Get advice if your lender won't give you permission to sell. An adviser may be able to help you to negotiate. It may be possible to:

argue that selling privately will allow you to pay off your debts more quickly

convince your lender to let you keep the same mortgage but transfer it to a new property

You could apply for a bigger mortgage to allow you to move to a new property and pay off the negative equity. However, increasing your mortgage will usually increase your debts and mean that you must pay higher interest rates.

Your lender can't repossess your home just because you are in negative equity. However, there's a risk that you home may be repossessed if you fall behind with your mortgage payments.

Repossession doesn't happen automatically. Your lender may let you stay in your home and not sell it if you can come to an agreement about how you will pay off the arrears. 'Preventing repossession' has more information on preventing your lender from repossessing your home.

You will still be responsible for your monthly payments until the sale is completed. Selling may take a long time, so the amount you owe could increase considerably.

[laurejon]

First off

If you have a high loan to Value mortgage then you will be asked to buy a MIP.

Mortgage Indemnity Premium covers the Building Society should you be repossesed, however the Insurance company will then chase you for the loss.

If you dont have a MIP then the Building Society will accept the keys back and liquidate the asset or liability if that is what it is, any shortfall you will have to pay back and will be persued like any other debt.

The trick is to declare bankruptcy and then you will owe nothing at all and be clear inside 12 months, albeit with a murky past.

However a murky past is better than ten years on a repayment plan.

Most Lenders soon forgot the bad old days and lent to anyone who had two ears and some hair on their head.

[Van]

This thread is really scary. Imagine being chased for 6 or even 12 years for 100k's worth of negative equity. I can easily see it happening to quite a few people.

I assume that the debt they chase you for is frozen... or do they charge interest on it also?!??

[Guest muttley]

First off

The trick is to declare bankruptcy and then you will owe nothing at all and be clear inside 12 months, albeit with a murky past.

However a murky past is better than ten years on a repayment plan.

Most Lenders soon forgot the bad old days and lent to anyone who had two ears and some hair on their head.

<{POST_SNAPBACK}>

An alternative to bankruptcy,that you may like to consider,is to not get into too much debt in the first place.

[Mr Tickle]

An alternative to bankruptcy,that you may like to consider,is to not get into too much debt in the first place.

<{POST_SNAPBACK}>

Theres a lot to be said for the alternative approach

[Guest Charlie The Tramp]

Mortgage Indemnity Premium covers the Building Society should you be repossesed, however the Insurance company will then chase you for the loss .

Well things have really changed. It was compulsory when I took out my first mortgage in 1969. A one off premium paid by the borrower protected the BS from any loss on the loan and that was the end of it.

If you are right then today it`s like insuring your car, having a bang, the insurance company pays for repairs, and then asks you for the money.

I assume that the debt they chase you for is frozen... or do they charge interest on it also?!?? 

Interest is charged on the debt until it is repaid.

An alternative to bankruptcy,that you may like to consider,is to not get into too much debt in the first place.

Well said young muttley.

[VacantPossession]

An alternative to bankruptcy,that you may like to consider,is to not get into too much debt in the first place.

<{POST_SNAPBACK}>

For some in 1990 that was quite difficult to achieve, especially if you bought at the top of the market, which of course at that time did not have the advantage of websites like this to tell you not to.

VP

[zzg113]

I assume that the debt they chase you for is frozen... or do they charge interest on it also?!??

They charge interest on it. There have been some accusations against the banks that they delay chasing someone as long as possible within the legal time limit in order to maximise the amount of interest (and hence profit) they can charge on the debt someone owes them. There is more than a little evidence that this is the case.

[Saving For a Space Ship]

Well things have really changed. It was compulsory when I took out my first mortgage in 1969. A one off premium paid by the borrower protected the BS from any loss on the loan and that was the end of it.

If you are right then today it`s like insuring your car, having a bang, the insurance company pays for repairs, and then asks you for the money. 

Interest is charged on the debt until it is repaid.   

Well said young muttley. 

<{POST_SNAPBACK}>

Charlie, surely if the debtor was on a low or no income they can get them to freeze the interest, using the arguement they will never pay the debt back as it keeps getting bigger with the interest.

The bank will fight it vigourously of course, but I've heard you can take them to the small claims to enforce it , but a threat is usually enough. Otherwise there's always the threat of bankruptcy, where the mortgage lender gets nothing.

[Saving For a Space Ship]

They charge interest on it. There have been some accusations against the banks that they delay chasing someone as long as possible within the legal time limit in order to maximise the amount of interest (and hence profit) they can charge on the debt someone owes them. There is more than a little evidence that this is the case.

<{POST_SNAPBACK}>

Thanks for that zz, I just forwarded your paragraph to a friend of mine in debt, who was inferring to me that things were Ok, because the bank were not hassling him after he'd missed a couple of loan instalments. I suggested that this meant nothing & he should get them to freeze the interest immediately as he is now unemployed, or threaten them with small claims court if they say no.

[Marina]

Last time round, those people that were sensible enough to put their hands up and deal with their lender often came to an agreement. I knew a couple of people at the time who were 40k light and the lender wrote off a chunk of it.

Lenders are always well protected as, at any point of time, the majority of their loans are more than a few years old and are being paid off, like clockwork each month, by the mortgage slaves. Lenders realise when a young person suffers negative equity the lender won't get blood out of a stone so they do deal - but they don't write debts off. If they did, everyone would try it.

Also, last time round, after a few years of depression and recession, the market was still stagnant so some lenders, realising things were never going to pick up, and, as interest rates fell from their highs in the early 90s, they offered deals - we'll let you sell your house and carry forward your negative equity to your new house if you take out a much bigger mortgage. At the time it seemed almost cruel, but it did get a lot of people out of a hole and got the market moving again.

[Bluelady]

Thanks for that zz, I just forwarded your paragraph to a friend of mine in debt, who was inferring to me that things were Ok, because the bank were not hassling him after he'd missed a couple of loan instalments. I suggested that this meant nothing & he should get them to freeze the interest immediately as he is now unemployed, or threaten them with small claims court if they say no.

<{POST_SNAPBACK}>

You can't take someone you owe money to to the small claims court. More a case of the other way round. Try threatening a creditor with this and see how far it gets you.

[Saving For a Space Ship]

You can't take someone you owe money to to the small claims court.  More a case of the other way round.  Try threatening a creditor with this and see how far it gets you.

<{POST_SNAPBACK}>

I was advised a couple of years ago that if a lender did not agree to freeze the interest on a debt that was increasing due to interst charges then the debtor can take them to court to freeze the interest.

Of course they have to agree a repayment plan (most courts will enforce a £1+ a week if you are on the dole with £55 a week income), and this mainly applies to debtors without major assets and a low/no income. Otherwise as you say the lender may well take the debtor to court and take any assets.

I also suggested this approach to an asset-less person 6 months ago with £60K of debts, & the lenders did freeze the interest on most of it. The debtor was considering bankruptcy, which I advised against. they talked to the Citizens Advice Bureau & were told virtually the same as I advised.

Maybe they were lucky in getting that deal, but they had a low income with a young child, & were not unemployed.

[Bluelady]

I was advised a couple of years ago that if a lender did not agree to freeze the interest on a debt that was increasing due to interst charges then the debtor can take them to court to freeze the interest.

Of course they have to agree a  repayment plan (most courts will enforce a £1+  a week if you are on the dole with £55 a week income), and this mainly applies to debtors without major assets and a low/no income. Otherwise as you say the lender may well take the debtor to court and take any assets.

I also suggested this approach to an asset-less person 6 months ago with £60K of debts, & the lenders did freeze the interest on most of it. The debtor was considering bankruptcy, which I advised against. they talked to the Citizens Advice Bureau & were told virtually the same as I advised.

Maybe they were lucky in getting that deal, but they had a low income with a young child, & were not unemployed.

<{POST_SNAPBACK}>

A creditor is under no obligation whatsoever to freeze the interest on a loan - a quick check on the terms and conditions will confirm this. Sometimes they do it because they see it as their best chance of getting at least some of their money back but no court in the land can make them do it.

[Saving For a Space Ship]

A creditor is under no obligation whatsoever to freeze the interest on a loan - a quick check on the terms and conditions will confirm this.  Sometimes they do it because they see it as their best chance of getting at least some of their money back but no court in the land can make them do it.

<{POST_SNAPBACK}>

Are you sure ? i thought there was a rule that if the debt kept going up & up &up because of increasing interest, so that the debtor was never going to be able to pay it back, then the court would enforce this.

If not , I agree it is most likely as you say, that lenders accept it as a more attractive option to bankruptcy. Something else they don't wish to advertise.

[Bluelady]

Are you sure ? i thought there was a rule that if the debt kept going up & up &up because of increasing interest, so that the debtor was never going to be able to pay it back, then the court would enforce this.

If not , I agree it is most likely as you say, that lenders accept it as a more attractive option to bankruptcy. Something else they don't wish to advertise.

<{POST_SNAPBACK}>

Why should they? That would be an open invitation to people to run up huge amounts of debt and then ask the lender just to freeze the interest because they couldn't afford to pay it back. And who would pay? Those of us who do pay our bills and don't get into debt we can't afford.

[Saving For a Space Ship]

Why should they?  That would be an open invitation to people to run up huge amounts of debt and then ask the lender just to freeze the interest because they couldn't afford to pay it back.  And who would pay?  Those of us who do pay our bills and don't get into debt we can't afford.

<{POST_SNAPBACK}>

Sure, I'm not condoning it. It would take several decades for the mug with 60K of debts to pay that back anyway, so the interest is a minor issue in comparison.

I think they got hooked on the cc's, the lenders were irresponsible lending such a large amount to a low income earner as well, the subject of which has been well discussed before. There's something to be said for controls needed on greedy / irresponsible lenders not trapping borrowers into a lifetime of ever increasing debt though.

Maybe we need more options than bankruptcy etc.

[Guest Charlie The Tramp]

There's something to be said for controls needed on greedy / irresponsible lenders not trapping borrowers into a lifetime of ever increasing debt though.

<{POST_SNAPBACK}>

I met an old customer a retired senior bank manager a few days back, and we started chatting about the current debt problem. He is a typical George Mainwaring type, very responsible and of the old school, who was forcibly retired at 55 years of age 15 years ago and is still quite bitter.

They brought in all those Uni types with their financial and economic degrees, put them on performance bonuses, and now we see the results he said.

[Guest Happy Harry]

They brought in all those Uni types with their financial and economic degrees, put them on performance bonuses, and now we see the results he said.

What goes around comes around to be sure.