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Selling With Negative Equity - The Housing Crunch

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If you check out the North England House Prices forum, you'll see a growing tale of carnage and desperation in the region's city centre flats, especially in Newcastle and Gateshead. Some of the flats that are selling (and that's by no means everyone) can go for 50% of the original purchase price - up to £105,000 is the largest I can recall seeing.

For those of you in the know, what happens when you sell a property with negative equity or it is repossessed and sold for less than the mortgage amount owed?

I know that the situation is different here from America where they can just hand back the keys to the bank and any shortfall is cancelled.

Do lenders demand the money on the day of sale? Can they provide you with a financing facility to pay off any difference? Or do they just persue you into bankruptcy if they can't get the money?

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Or do they just persue you into bankruptcy if they can't get the money?

That's the one.

There is a time limitation, 6 years? 8 years?

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If you check out the North England House Prices forum, you'll see a growing tale of carnage and desperation in the region's city centre flats, especially in Newcastle and Gateshead. Some of the flats that are selling (and that's by no means everyone) can go for 50% of the original purchase price - up to £105,000 is the largest I can recall seeing.

For those of you in the know, what happens when you sell a property with negative equity or it is repossessed and sold for less than the mortgage amount owed?

I know that the situation is different here from America where they can just hand back the keys to the bank and any shortfall is cancelled.

Do lenders demand the money on the day of sale? Can they provide you with a financing facility to pay off any difference? Or do they just persue you into bankruptcy if they can't get the money?

I believe you are persued into banktruptcy here in the UK.

It's a pity that this very fact didn't stop folks signing up for these daft 125% LTV mortgages for a shoebox.

At least, there in the US I can understand folks taking a punt on bettering their living conditions for their kids if they know they can walk away from negative equity if they have to.

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The first problem is selling. The bank's position is that it will not release the deeds until it is assured of receiving the funds against which it holds security. Even if the seller is willing to sell to the willing buyer, it won't move because the sale price is insufficient to discharge the mortgage so the bank won't release.

I see big problems this time round. Last time, generous lenders would allow 100% plus mortgages so that the NE could transfer. It doesn't look like they will this time round.

p-o-p

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How did these city centres get themselves in this mess? Didn't anyone do sums on how much housing stock was required?

City centre flats mostly sold to investors.

The fact that these flats are of any use (i.e. you can actually live in them) is irrelevant.

They are developed, marketed and sold as investments, IMO thier function is meaningless.

Thats why they will be mostly worthless to someone who wants to buy somewhere to live.

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How did these city centres get themselves in this mess? Didn't anyone do sums on how much housing stock was required?

Yes they did a sum but unfortunately it was a political one rather than a mathematical one.

It goes something like this:

We need lots of housing....

The people who bother to vote riot every time we try to build new family homes in the fields near their family homes that were built on fields...

So instead we'll build BTL rabbit hutches on the sites of ex-businesses that closed down because their land was worth more than the business due to the artificially high price of land caused by the above. Oh and we might as well build them on the remaining few green spaces in the cities too while we're at it, no-one complains about that so much.

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I believe you are persued into banktruptcy here in the UK.

That statement is wrong in regard to OO and will frighten many strugglig OO , yes that lose their home, no point in bakrupting them at that stage, in the last recession they tended to wait a few years then contact you to do a deal over the shortfall often accepting 5-15p in the pound. They want you to get back on your feet so there is more to get hold of.

This will not apply to BTL...you presumably will have other assests your main home and they will want a full and lengthy chat about how you will settle the shortfall with those other assets

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This will not apply to BTL...you presumably will have other assests your main home and they will want a full and lengthy chat about how you will settle the shortfall with those other assets

This is the difference between 1991 and 2008. The Greeks said that when history repeats, it repeats first as farce and then as tragedy. Two words;

MARGIN CALLS!!!!

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How did these city centres get themselves in this mess? Didn't anyone do sums on how much housing stock was required?

Developer sellers who can sell ice to the eskimos and buyers who have $$$$ in their eyes and willing to believe what they hear with absolutely no research done and easy credit .

Summary

1) Good Selling Techniques (with lots of porkies thrown in)

2) Gullible Buyers

3) Easy Loans

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That's the one.

There is a time limitation, 6 years? 8 years?

There is a time limit on how long a lender can go before they issue proceedings to recover the debt. Once they have a judgement they can take as long as they like e.g. they could collect some money off of you year after year to get the outstanding money back.

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That's the one.

There is a time limitation, 6 years? 8 years?

The statute of limitations is 12 years for a deed - and mortgages are deeds (for lots of reasons, this being just one).

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I

Do lenders demand the money on the day of sale? Can they provide you with a financing facility to pay off any difference? Or do they just persue you into bankruptcy if they can't get the money?

Generally, if your mortgage is more than 75% the lender insists you also take out a mortgage Indemnity guarantee - an insurance policy making up the difference. Then, if you get repossessed, the lender collects on the insurance (you have paid for it, but you don't benefit) and you are then pursued by the insurance company. Frequently they wait for you to get another house & build up some equity, then pounce (at least, that's what happened in the 90s)

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Two things from above:

1) Yes, the statute of limitations allows the lender to pursue you for the money for 12 years. However, a number of larger lenders have a policy of not chasing after 6 years. But they can and will come after people for the money. Often the people don't know this. Having walked away they think that's it. And it comes as a complete bolt from the blue when they suddenly get a letter years later asking for the money.

2) Mortgage Indemnity Guarantees were brought in after the last crash. Typically if you borrowed over 75%-85% you would be asked to buy one of these policies as part of the loan agreement, usually costing about £1000-1500. However, in the urgency for competitiveness, in the early 2000s these largely disappeared completely. So most people these days won't have one at all. In fact, to most house buyers the fact they have ever existed is a complete mystery. Yes, these were paid for by the house buyer to protect the lender; they will pay out any loss of value in the case of negative equity. The buyer pays for the policy, the lender collects the shortfall, then the insurance company will pursue the house buyer for the shortfall. Many people believed that buying an MIG meant they could walk away, that it was covered. They had no idea they would still be chased for the money as they thought they were buying a plain insurance product that simply coughed up and paid out.

Edited by ScaredEitherWay

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Two things from above:

1) Yes, the statute of limitations allows the lender to pursue you for the money for 12 years. However, a number of larger lenders have a policy of not chasing after 6 years. But they can and will come after people for the money. Often the people don't know this. Having walked away they think that's it. And it comes as a complete bolt from the blue when they suddenly get a letter years later asking for the money.

2) Mortgage Indemnity Guarantees were brought in after the last crash. Typically if you borrowed over 75%-85% you would be asked to buy one of these policies as part of the loan agreement, usually costing about £1000-1500. However, in the urgency for competitiveness, in the early 2000s these largely disappeared completely. So most people these days won't have one at all. In fact, to most house buyers the fact they have ever existed is a complete mystery. Yes, these were paid for by the house buyer to protect the lender; they will pay out any loss of value in the case of negative equity. The buyer pays for the policy, the lender collects the shortfall, then the insurance company will pursue the house buyer for the shortfall. Many people believed that buying an MIG meant they could walk away, that it was covered. They had no idea they would still be chased for the money as they thought they were buying a plain insurance product that simply coughed up and paid out.

seems a bit of an insult to ask a borrower to take on the lenders risk with an insurance policy.After all isint that why credit exists? the risk is part of the reason why you pay a % over boe rates to a lender for.cc companies dont do it compulsory though push you for it to make extra revenue, so why should mortgage providers who have a greater safety net ie trhey effectively own the property till you pay the loan.

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For those of you in the know, what happens when you sell a property with negative equity or it is repossessed and sold for less than the mortgage amount owed?

Owner Occupiers in negative equity would be best advised in most cases to keep paying the mortgage at the expenses of all other outgoings such as credit cards and personal loans. In fact rack them up.

Then go bankrupt.

The unsecured debts will vanish overnight. As there is no equity in the house it is not an asset and so the Official Receiver will not force a sale. So long as you keep making the payments the mortgage company will be happy for you to stay there. The mortgage payments will be offset against the amount you will have to pay your other creditors meaning, in most cases, you'll have to pay nothing.

Which will make the mortgage payments easier to afford.

After a year you will be discharged and any subsequent capital gains on the house are yours to keep.

BTL investors are fooked. They will be made bankrupt and will lose their own homes if there is any equity. I suspect that many BTLers will be selling their homes first and hiding the cash while moving into one of their rental properties.

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The first problem is selling. The bank's position is that it will not release the deeds until it is assured of receiving the funds against which it holds security. Even if the seller is willing to sell to the willing buyer, it won't move because the sale price is insufficient to discharge the mortgage so the bank won't release.

I see big problems this time round. Last time, generous lenders would allow 100% plus mortgages so that the NE could transfer. It doesn't look like they will this time round.

p-o-p

I tried to sell a house with negative equity in 1991. When I asked the building society they simply said that they wouldn't release the deeds, therefore I simply could not sell. I didn't own the house. I became an obligate landlord.

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Owner Occupiers in negative equity would be best advised in most cases to keep paying the mortgage at the expenses of all other outgoings such as credit cards and personal loans. In fact rack them up.

Then go bankrupt.

The unsecured debts will vanish overnight. As there is no equity in the house it is not an asset and so the Official Receiver will not force a sale. So long as you keep making the payments the mortgage company will be happy for you to stay there. The mortgage payments will be offset against the amount you will have to pay your other creditors meaning, in most cases, you'll have to pay nothing.

Which will make the mortgage payments easier to afford.

After a year you will be discharged and any subsequent capital gains on the house are yours to keep.

BTL investors are fooked. They will be made bankrupt and will lose their own homes if there is any equity. I suspect that many BTLers will be selling their homes first and hiding the cash while moving into one of their rental properties.

not quite - the Official Receiver has three years to deal with any interest in property aquired in bankruptcy.

With regard to the OP's question, the lender has 12 years to sue for the capital element and six years to sue for the interest element. But if a county court judgment is obtained then the time period is indefinite.

http://www.payplan.com/debt-library/mortga...-shortfalls.php

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BTL investors are fooked. They will be made bankrupt and will lose their own homes if there is any equity. I suspect that many BTLers will be selling their homes first and hiding the cash while moving into one of their rental properties.

Then we'll see who was telling the truth about "luxury city centre living". Jurstice! :lol:

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City centre flats mostly sold to investors.

The fact that these flats are of any use (i.e. you can actually live in them) is irrelevant.

They are developed, marketed and sold as investments, IMO thier function is meaningless.

Thats why they will be mostly worthless to someone who wants to buy somewhere to live.

You've highlighted an important point - city-centre flats were built to satisfy an investment market, not a house/home market. The quality of life offered by these rabbit hutches is just about acceptable to young, single professionals but diabolical for families. And there simply aren't enough young singles around to occupy all these places. Investment buying off-plan created an artificial demand that has rapidly gone into reverse. I haven't actually viewed any of these places but perhaps, if layout allows, the only way they might be off-loaded would be to wait until prices drop by at least 50% and knock two or three flats into one halfway decent-sized place.

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How did these city centres get themselves in this mess? Didn't anyone do sums on how much housing stock was required?

The government is still claiming we need 100's of thousands of new homes each year as an excuse to open up greenfield sites.

Someone sums don't add up.

Personally I would suggest its the shifty government that keeps billions of the books via expensive pfi deals....

Fod

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I tried to sell a house with negative equity in 1991. When I asked the building society they simply said that they wouldn't release the deeds, therefore I simply could not sell. I didn't own the house. I became an obligate landlord.

Did you leave it on the market at a figure that would redeem the mortgage or just pull it and wait? I ask because it could throw some light on current stats - asking prices holding up but volume right down.

p-o-p

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  • 297 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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