Mortgage "Strategic Default"

okioffice84

Has anyone heard of this? Basically it's where a person(s) who can still make mortgage repayments decides for whatever reason (e.g. rising interest rates & negative equity) that paying back a mortgage no longer makes financial sense, they simply stop paying and wait for the bank to re-posses and move out. What would the legal consequences of this be?? (apart from the bank taking the property and being unable to get another mortgage)

djk1000

In Ireland, if you default on your mortgage, the bank can pursue you to reposes the property. They'll probably then auction it or sell it as quickly as they possibly can. Your outstanding mortgage plus all the legal and sales fees, less the amount the bank got for the house, is what you still owe the bank and they'll be after you for that too.

What you owe is what you owe, a mortgage is a loan with a property as collateral, if the collateral won't cover it, then you have to.

Jo King

In general the bank will sell on the property very quickly after repossession. The price secured will almost invariably be less that the householder would have secured themselves. The result of allowing the bank to repossess is thus going to increase the size of the residual debt in addition to the extra legal costs arising out of the repossession.

Tom Young

Legal advice is not available here.

Practically, it's not a good policy. Also, banks are chasing these debts. Pay the mortgage as best you can, even if not in the full amount.

Negative equity is a game of swings and roundabouts. You've made your bed, now luy in it. If the entire country took the 'strategic default' approach where would we be? Even the suggestion of such a practice enrages me.

Let the people who are suffering true poverty benefit from the equity and justice/procedural delays. Those who have entered contracts or mortgages should honour same.

Tom

Maximilian

Deliberately defaulting on a mortgage would not help the average homeowner at all because the Bank still has full recourse against the borrower for the entire amount of the loan. If you have a negative equity situation, then that would be disastrous for the average person.

That said there are instances where Banks have lent money on the basis that they would have recourse to the property only and could not pursue the borrower for any remaining balance. You would typically see this with institutional borrowers investing in a large office block or something with what would have been low loan-to-value ratios at the time.

So to give an example, say there was a non-recourse loan to an institution for €30m a few years back, to buy a large office building in London. The purpose being for that institution to sell 'shares' in the deal to a large number of investors, say. At the time the loan was given the property was worth say €50m, so the bank would have thought itself well covered. The same building might only be worth €20m now, so a "strategic default" might actually make sense. The Bank would only be able to recover whatever the building was worth. The Bank would lose €10m. The investors would lose their investment of course.

One of the reasons the Irish property developers are so screwed is that their loans with the banks are full recourse. That's why you may have read in the papers of one of the Banks looking for a €30m personal judgement against a well known developer. The loan was either full recourse or a guarantee was given. I believe in the UK, non-recourse loans are more common. So were these guys based in the UK, they may have lost a lot of assets through failed loans but their castles, helicopters and ferraris would still be safe.

davem75

So what are the consequences of the bank repossessing of your property.

Do they close your bank accounts. Do they cancel your credit card.
You can change banks....

Do you get put in jail for failing to pay? A debtors jail.

I hear talk to bad credit ratings but really so what.

Property is so messed up..... it will never return to the way it was.

What is the worst a bank could do to you for been unable or not wanting to pay your mortgage.

Long Onion

davem75 wrote: »

So what are the consequences of the bank repossessing of your property.

Do they close your bank accounts. Do they cancel your credit card.
You can change banks....

Do you get put in jail for failing to pay? A debtors jail.

I hear talk to bad credit ratings but really so what.

Property is so messed up..... it will never return to the way it was.

What is the worst a bank could do to you for been unable or not wanting to pay your mortgage.

The consequences are that a judgement can be registered against you for the debt which will hang over your head until such time as the debt is re-paid. Your creadit rating will be effected, you could potentially receive a custodial sentence if it is shown that you can pay but simply refuse to do so.

The Bank may decide to call in all other credit agreements. You may find that you could not go guarantor on a loan for your children in the future, that you would not be considered for certain jobs, that you are refused credit for a number of purchases (including car insurance by monthly installments)

My own opinion is that 'strategic' defaults are never very stategic in the first place. It's better to be responsible and pay your debts, if you can't do this, talk to the lender and hammer out an agreement, they want their money more than they want your house.