No matter what your current financial position is you should not surrender your property to the bank without first discussing your situation with one of the ten or so active PIPs in Ireland.
If you simply surrender a property you are throwing away a valuable trump card in relation to debt settlement – perhaps the only trump card you currently have. It is a substantial negotiating tool that can potentially be used to clear down all or most of your debts.
Voluntary Surrender Has A Tangible Value
You may believe your situation is so hopeless that it makes no difference.
Perhaps the property is a buy-to-let with substantial negative equity and potential rental income that won’t even cover the interest on your mortgage.
Many people in this type of situation just want to get the bank off their back and to get rid of the property.
There are many different seemingly hopeless scenarios like this but no matter what your situation you should understand that from a banks point of view there is a tangible value to a voluntary surrender.
This is because the alternative for the bank is potentially having to go through the legal process of repossession which is expensive and time consuming, often taking two years or more.
Calculating The Value Of A Voluntary Surrender
Exactly how much is the value of a voluntary surrender and how is this value calculated?
From our experience in insolvency negotiations with banks to date the average value to the mortgage lender of a voluntary property surrender can be up to €30,000.
This is calculated very roughly by multiplying potential lost rental income by twenty four months and adding the cost of legal fees. So for example:
24 months x €1,000 rent is €24,000 + legal fees of €6,000 = €30,000
This “value” can be used like cash along with a contribution of whatever you can afford to pay to settle all or part of whatever debts you owe. And we are not just talking about your debts with the lender but all other debts such as credit cards or personal loans as part of an overall solution to your debt problems.
How Do You Realise The Value?
This does not mean that you can ring the bank up and say “I know if I surrender my property this is worth €30,000 to you.”
In order to realise this value you need to enter a Personal Insolvency Arrangement (PIA) but this can be done at no cost to you.
You will need to approach one of the ten or so active Personal Insolvency Practitioners in Ireland (PIPs) such as GT Debt Solutions and we will get the process going. (Unlike most PIPs we do not charge upfront fees so you have nothing to lose in consulting with us.)
As with all PIA’s there is a straightforward process and you can learn more about this in our recent post about accelerated PIAs.
How Does an Accelerated PIA Work?
We will come up with a proposal to settle all your debts. The key to it being that the mortgage lender holds the majority vote of over 65% of the creditors voting rights and therefore under the legislation it is only they who have to approve of the arrangement and all the other creditors will be brought along. A majority of 50% secured and over 50% unsecured creditors will also be required and quite often this will be the same secured provider particularly if there is significant negative equity.
So for example, let’s say the value of the property is €200,000 with negative equity on the property of €150,000 and the total of the other unsecured debts, such as credit card and credit union loads, are €50,000. In this case we only need to negotiate and agree with your biggest creditor, the mortgage holder who in this case holds 75% of the debt. Once they support the proposal it is approved.
The whole process should take from 3 to 6 months in order to be court approved.
Call and arrange to speak with one of our client managers for a more detailed understanding of how this process can work in your particular situation.
Why Would A Bank Agree To This?
When people have been dealing directly with their mortgage lender for quite some time but feel they have been making no progress they find it hard to understand how we can do so much better.
The key is that we do a robust review that includes sworn affidavits. The banks trust our intensive due diligence which ensures the debtor is fully transparent to the bank. This in turn allows them to make a decision based on the facts. In the absence of a trusted third party in the middle there often seems no way to easily resolve the impasse and eventually the bank will see no alternative but to go down the legal route.
In this type of situation the bank often see that a voluntary surrender is better than a legal repossession where returns would be less favourable for the creditor.
Offering a PIA as a resolution is seen as a kind of accelerated bankruptcy but is generally far cheaper and faster for the bank than firstly having to issue legal proceedings to repossess the property and then having to force the debtor into bankruptcy to attempt to realise further funds against the remaining amount of the mortgage which then becomes unsecured debt.
We can help even if you are at the point of surrendering your property or having a property repossessed. You may be surprised at how much bargaining power you have at that point and just how much debt can be written down.
If you are going to lose your property it makes sense to try to ensure that all your other debt is written off at the same time so that you can have a fresh start in life.
Call us now and see how we can help.