Negative Equity; Banks, rescued from collapse at a massive cost to the taxpayer, show very little willingness to rescue their indebted clients.
In fact many financial institutions are currently choosing to deliberately prolong their customers' duress, potentially increase their customers' liabilities to the bank and curtail their customers' ability to move on with their lives.
The collapse in Northern Ireland residential property prices has left a significant proportion of homeowners trapped in their houses due to being in a position of Negative Equity. For an ever-growing number of these homeowners, the situation has been considerably exacerbated by a change in personal circumstances such as;
- Financial redundancy, reduced earnings, the seemingly-endless squeeze on disposable income, increased mortgage payments (end of an Interest-only period/ increasing interest rates).
- Relationship change couples break-up, divorce, death of a partner, people who chose to buy together find themselves at diverging stages in life.
- Family suddenly that starter home/ apartment is too small, not safe for young children, too far away from the essential support network of grandparents/family/childcare options.
- Illness critical health issues and potential disabilities mean your existing residence is unsuitable.
- Relocation change of job location.
What are your options if you find yourself in this position? The first thing is to engage (directly or via a professional intermediary) with your lender, making them aware of your situation says Ajay Sharma a director of CD Fairfield Capital.
CD Fairfield Capital, based in Belfast, specialises in helping people who find themselves in negative equity or are struggling with property-related debts. The company has a Consumer Credit License to provide debt restructuring services and is regulated by the Office of Fair Trading (OFT).
Broadly speaking, homeowners' options include (1) Restructure/ Renegotiation, (2) Negotiated Settlement and/or (3) Formal Insolvency Process. The financial institutions have no choice but to participate with option (3) however options (1) & (2) are completely at the lenders' discretion.
A number of our financial institutions pay lip service to or in some cases, openly refuse to participate in options (1) or (2) for example;
- Restructure most lenders won't offer anything more creative than a repayment holiday, term extension or interest rate reduction none of these options are likely long-term remedies (although they are valid solutions for some borrowers).
<li">Negotiated Settlements if they even have a process for this, many limit it to cases of financial duress only (as if the other reasons above don't matter). Other lenders refuse to approve borrower-led property sales leaving the homeowners with no choice but to voluntary surrender the property back to the lender (despite clear empirical evidence showing that a borrower-led sale will likely yield a higher price).
The irony of this, and the reason why the legal profession may be busy in the not-to-distant future, is that it should almost always be in the lenders' interests to deal with their clients in a consensual manner. The property will almost always achieve a higher price when sold by the borrower openly and transparently than via an enforcement/repossession/auction route with the associated fixed charge receivership costs, adds Ajay.
A consensual process offers the lenders;
- A full and final resolution of the problem
- A higher sales price for the property
- The potential for an agreed shortfall settlement clients may have affordability to repay a fixed amount over a fixed period or access to third party funds. The key is that they are motivated to do so by the prospect of a full settlement.
- No fixed charge receivership costs
- Protecting the lenders against potential future litigation
By not participating meaningfully and commercially in a consensual process means lenders could be accused of;
- Not offering customers a realistic resolution/solution customers are potentially being forced into a position where they have a significant liability hanging over their heads for 12 years (debt on a deed). To say that this severely prolongs the customers' uncertainty and increases duress is an understatement. The customers will also find it virtually impossible to secure credit during that time.
- Increasing customers' liabilities when the lender sells the subject property, in all probability at a lower than- market value auction price, and pays its fixed charge receivership costs the residual shortfall will almost certainly be higher than the likely shortfall via a consensual process. It is absolutely unfair for customers to be exposed to this risk particularly those customers that are openly, transparently and honestly engaging with the bank to try and resolve the matter.
- Materially affecting customers' livelihoods if you have an occupation (accountancy/legal/ financial services to name but a few) that are materially affected by formal insolvency then you are really being forced into a terrible position.
Treating Customers Fairly (TCF) is a fairly basic tenet of banking and it shouldn't need a solicitor to force the banks' hands to do what is patently in their interests to do anyway.