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Saturday 23 August 2014

How to wake up from a joint-mortgage nightmare

Louise McBride

Published 16/03/2014 | 02:30

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David Hall: Irish Mortgage Holders Organisation director
David Hall: Irish Mortgage Holders Organisation director

THE runaway house prices of the boom years forced many people to hook up with their friends, siblings or parents to get on to the property ladder. Those prices are a distant memory for most homeowners now.

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However, the enormous joint mortgages that people took on during the housing bubble are at the heart of many of the financial nightmares being faced today.

If you bought a property with someone, and you run into problems repaying the mortgage, you cannot strike a deal with your bank to resolve those problems – without the agreement of the person you bought with. So if the only way to get out of mortgage arrears is to sell the property, for example, you won't be able to do so if the joint borrower won't agree. This, of course, means that your home could be repossessed. Not only will this damage your credit rating going forward, if the bank has to get a court order to repossess your home, you usually have to foot the bill for the legal action.

"The bank cannot progress any arrangement on mortgage arrears in the absence of all parties to a mortgage," said David Hall, director of the insolvency experts, the Irish Mortgage Holders Organisation (IMHO). "That includes parents who acted as guarantor for a mortgage. This can be very hard to achieve. One party could be willing to strike a deal with a bank [on mortgage arrears] but if the other signature isn't there, it won't happen. There have been cases of repossession proceedings against the wife and kids where the husband is not around – or not cooperating."

Warring partners aren't the only ones feeling the pain of joint mortgages.

"Where two friends have bought a property together, it's become very common for one to become unemployed and emigrate – and to then refuse to pay the mortgage," said Bill Holohan, senior partner at Holohan Law Solicitors. "That leaves the person here stuck with the problem. They may have to look at personal insolvency or bankruptcy. The person who has emigrated is still on the hook for the loan – but the practicalities of trying to recover money from someone abroad are hard. (But) the person who has emigrated may not be able to return to Ireland if there is a debt judgement waiting for them when they come back."

* Guarantors

Parents are also being hauled into the joint mortgage nightmare because they often went guarantor or joint borrower on a mortgage to boost their child's chances of getting a loan.

The guarantor route has proved to be "a disaster", according to Holohan. "The whole guarantor thing was based on the assumption that property prices would continue to rise," said Holohan. "The assumption was that parents would never be called upon. That hasn't turned out to be the case. Parents who have gone as guarantor for children are now being called on in retirement to discharge the liability that has arisen after their child – or their child's partner – ran into difficulty repaying a mortgage. That's a very good example of the type of thing that is cropping up on a regular basis today. The biggest fear that a lot of parents have when they find themselves in such a situation is whether or not they could lose their home."

* What are your options?

If you bought property with a friend or sibling, and you have since gone your separate ways, renting out the property could be an option – if neither of you wishes to continue living there.

If one of you wants to continue living in the property, you could rent out a room under the rent-a-room scheme and earn up to €10,000 a year in rent tax-free.

Renting out the property completely will only make sense if the rent is enough to cover the mortgage. Ideally, the rent too should cover any tax bill and expenses which will arise from renting out the property. If this is not possible, however, make sure that you and your friend or sibling contribute equally to a fund which will cover the tax bill and any expenses.

If you bought a property with someone that you have since fallen out with, and you are running into problems repaying the mortgage, get advice from a solicitor or reputable insolvency organisation. The same applies if you have gone guarantor on a loan and the bank is now calling on you to repay that loan. "Try to negotiate a deal where you can limit the extent of your liability," said Holohan.

Before a deal on mortgage arrears can even be negotiated, understand that all of those who signed up to the mortgage, including the guarantors, must complete a standard financial statement (SFS). With a SFS, you give a detailed breakdown of your monthly expenditure and income, loan repayments, and any assets you own. That breakdown includes things like the amount of money spent on electricity, bin charges, petrol, birthdays and eating out, as well as the value of any redundancy payment or savings held.

If the bank does not receive an SFS from all parties to a mortgage, it could deem you all "uncooperative borrowers", which means you could lose your house faster than "cooperative" borrowers will. (Uncoopertive borrowers are essentially people who don't engage with their lenders to try to resolve their mortgage arrears – or who engage with their lender in a way which prevents the bank from assessing their circumstances).

If you bought a property with someone who has since moved on, you will need to apply for a mortgage in your own name if you want to stay in the house and take over the mortgage by yourself. "When a mortgage is granted to two people, it is based on both of their credentials so it is not possible for one person to just take themselves off the mortgage without the other person first getting a mortgage in their own name," said a spokesman for the consumer watchdog, the National Consumer Agency (NCA). "The current mortgage will have to be redeemed and the person who wants to keep the house will have to reapply and be reassessed by the bank as an individual. In addition, both parties to the mortgage would have to be in agreement to redeem the mortgage at the outset."

If you are a couple who bought property together but you have since separated or divorced, don't assume that a separation agreement can get one of you off the hook for the debt. "We have seen cases where couples got separation agreements and under those agreements, one party exonerated the other from the debt and agreed to meet the repayments in full," said Hall. "However, the banks aren't recognising the separation agreements. The bank is the only party that can relieve or exonerate someone from debt."

Top tips if you're buying with a friend

IF you are hell-bent on buying property with a friend, sibling, child or lover, is there anything you can do to avoid running into problems down the line?

* Buy with someone you know and trust – and don't buy under duress.

* Go in with your eyes open. "Think it out carefully in the knowledge that it's not an ideal world and things change," advised David Hall of the IMHO. "You could move on, one of you could lose your job – and one of you could emigrate. There is no way in the world I'd advise anyone to buy a house with a friend. The risks and inherent dangers of doing so are very significant."

* Understand exactly where you stand. The best way to do this is to get legal advice and draw up a formal shared ownership agreement. "Think about issues like how you would handle the repayments should one of you lose your job," says solicitor Bill Holohan. "If one person pays more than another towards mortgage repayments from the start – or after the other loses their job, be clear if that person get credits for extra contributions and how. Set down how much of a deposit each person is putting into the property. State how the quality of each friends' contribution will be reflected in the percentage of ownership."

Agree what will happen if one of you decides to move on – for example, if one person wants to buy the other out instead of selling up completely.

* Know the limitations of shared ownership agreements. "A shared ownership agreement is only an agreement between you and your friend – not with the bank," said Honohan. In particular, understand the joint and several liability clause in your mortgage. "In general, both of you are liable for the mortgage," said a spokesman for the NCA. "This means that the bank may recover all of the liability (mortgage) from either borrower regardless of their individual share in the mortgage."

* Make sure you are both covered for mortgage protection insurance so that the mortgage is repaid should either of you die before the mortgage is repaid in full.

Know your tax obligations if you held on to Verizon stock

IF you're an Irish Vodafone shareholder who has decided to hold on to your Verizon shares under the latest deal, be sure to understand your tax obligations – particularly on any dividends you receive on those shares in the future.

"Any dividend paid by Verizon, being a US firm, would be US income," say the Revenue Commissioners . "Under the terms of the Ireland-US Double Taxation Treaty, such a dividend would be subject to 15 per cent income tax in the United States."

Assuming you are resident in Ireland for tax purposes, you would also have to pay income tax in Ireland on the dividend – at your marginal rate of tax.

"However, a credit would be given for the 15 per cent tax deducted in the US so as to avoid double taxation," added the Revenue spokeswoman.

If on the other hand you decide to sell your Verizon shares immediately, and you have already opted to receive your payout under the deal (that is your cash payment and your Verizon shares) as capital rather than income, you won't have to pay any capital gains tax when you sell your Verizon shares.

This applies to Vodafone shareholders who acquired their Vodafone shares in exchange for Eircom shares in 2001.

If you opted or are automatically receiving your payout as income, you will receive the sum of the cash payment and the value of the Verizon shares in the form of a dividend and you will therefore have to pay income tax, PRSI and the universal social charge on that dividend, according to Revenue.

Putting a price on a family heirloom

IF you have any old James Bond posters at the back of your wardrobe, or if you've held on to coins that your granny or great granddad had, don't earmark them for the skip just yet. A Dr No poster was sold for €3,800 at Whyte's collectibles auction last Sunday. The poster had only been expected to sell for between €600 and €800.

A collection of world coins, which was expected to sell for between €2,000 and €3,000, fetched €10,500 at the same auction. That collection included Irish silver halfcrowns, florins and shillings; British crowns and half-crowns, and German marks from 1913. And think twice before throwing out any novels you studied as a schoolchild – a rare first edition of Oliver Twist was sold for €5,000 at the same auction.

With the anniversary of 1916 approaching, Republican memorabilia is in demand. A letter written and signed by Padraig Pearse sold for €2,100. Minutes of Sinn Fein general and executive meetings held between 1907 and 1911 secured €3,800.

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