What happens if a houses in negative equity is issued with a CPO

Hollister11

Say you bought a house in the boom for 700K, and during the recession the property was issued a CPO with a value of 500K. If you owe 600K in the mortgage what happens to the balance of 100k left on the mortgage, with no asset.

Peregrinus

You still owe it to the bank, I'm afraid. And the bank is left with an unsecured debt. Neither of you will be very happy about this state of affairs.

L1011

Peregrinus wrote: »

You still owe it to the bank, I'm afraid. And the bank is left with an unsecured debt. Neither of you will be very happy about this state of affairs.

Wildly incorrect.


You will be left in no worse a position after the CPO than before. If one of the costs of dealing with that is 100k of negative equity, you'll get the 100k.

People seem to have utterly terrible understanding of how CPO works. They don't walk in with a cheque for a valuation they got off the local EA and demand the keys.

4ensic15

L1011 wrote: »

Wildly incorrect.


You will be left in no worse a position after the CPO than before. If one of the costs of dealing with that is 100k of negative equity, you'll get the 100k.

People seem to have utterly terrible understanding of how CPO works. They don't walk in with a cheque for a valuation they got off the local EA and demand the keys.

They issue a notice and make an offer. It then goes to arbitration to decide the value if no agreement is reached. they will only pay the agreed or deemed market value.

L1011

4ensic15 wrote: »

they will only pay the agreed or deemed market value.

Plus applicable costs. Which can be and often are decided at arbitration.

The OP has some idea of them turning up with a cheque and a digger, a la the opening of the Hitchikers Guide. Which does not happen.

I imagine someone in NE would be delighted to be CPOed, realistically.

Peregrinus

L1011 wrote: »

Wildly incorrect.


You will be left in no worse a position after the CPO than before. If one of the costs of dealing with that is 100k of negative equity, you'll get the 100k.

No, you won't. The general idea is to leave you in the same financial position you were in before the acquisition. Before the acquisition you had an asset worth 600k - the land - and obligations of 700k. After the acquisition you'll have an asset worth 600k - the cash - and obligations of 700k.

4ensic15

L1011 wrote: »

Plus applicable costs. Which can be and often are decided at arbitration.

The OP has some idea of them turning up with a cheque and a digger, a la the opening of the Hitchikers Guide. Which does not happen.

I imagine someone in NE would be delighted to be CPOed, realistically.

The costs of the arbitration and reasonable expenses (removals, survey of new house, stamp duty on new house etc. Paying off a debt is not a cost of the arbitration nor is it a reasonable expense. What you are saying is ridiculous. two housholders with identical houses could receive vastly different compensation just because one was in negative equity and one wasn't.


I don't see what is realistic about your imaginings.

Lumen

Peregrinus wrote: »

No, you won't. The general idea is to leave you in the same financial position you were in before the acquisition. Before the acquisition you had an asset worth 600k - the land - and obligations of 700k. After the acquisition you'll have an asset worth 600k - the cash - and obligations of 700k.

It seems more complicated because the obligation (debt) is secured on the asset, they're not independent. So there are several interests in the asset, one of which is a bank.

Forcing someone to close a leveraged position in a down market doesn't seem very fair.

4ensic15

Lumen wrote: »

It seems more complicated because the obligation (debt) is secured on the asset, they're not independent. So there are several interests in the asset, one of which is a bank.

Forcing someone to close a leveraged position in a down market doesn't seem very fair.

CPO is carried out in the interests of the common good. Individual hardship must yield to the greater needs of the community.

L1011

Peregrinus wrote: »

No, you won't. The general idea is to leave you in the same financial position you were in before the acquisition. Before the acquisition you had an asset worth 600k - the land - and obligations of 700k. After the acquisition you'll have an asset worth 600k - the cash - and obligations of 700k.

Except that it would be impossible to do that, due to the secured nature of the debt and the charge held on the property.

The entire CPO process cannot leave someone in hardship

If this was anything more than a hypothetical question by the OP (having seen the post that lead them to post it, it is hypothetical), they'd need to go to a solicitor who has experience in CPOs - also an allowable cost.

It works differently for non-residential property; but this isn't the forum for that.

4ensic15

L1011 wrote: »

Except that it would be impossible to do that, due to the secured nature of the debt and the charge held on the property.

The entire CPO process cannot leave someone in hardship

If this was anything more than a hypothetical question by the OP (having seen the post that lead them to post it, it is hypothetical), they'd need to go to a solicitor who has experience in CPOs - also an allowable cost.

It works differently for non-residential property; but this isn't the forum for that.

It is not impossible to CPO a property just because there is a secured debt. The bank must yield to the common good, for once.

Lumen

4ensic15 wrote: »

It is not impossible to CPO a property just because there is a secured debt. The bank must yield to the common good, for once.

Sure, but the issue is what constitutes proper compensation, and which parties are being compensated.

For instance, the bank might have sold off the loan below-par as a distressed asset if there was little chance of full repayment. Is it then fair that the current holder of the charge gets to cash out at par leaving the debtor owing the remainder?

4ensic15

Lumen wrote: »

Sure, but the issue is what constitutes proper compensation, and which parties are being compensated.

For instance, the bank might have sold off the loan below-par as a distressed asset if there was little chance of full repayment. Is it then fair that the current holder of the charge gets to cash out at par leaving the debtor owing the remainder?

It is irrelevant in a CPO. That kind of analysis is well beyond the remit of a CPO. CPO is by its nature invasive. A person's land is confiscated. Proper compensation is the open market value of the property as independently determined. The proper parties for compensation are the owners or reputed owners such as the holders of charges. A bank sells its charge and gets paid. It is no different a position to anyone selling an asset. The new owner might make a profit or even an extraordinary profit. In the absence of fraud, that is just tough.

Peregrinus

Lumen wrote: »

It seems more complicated because the obligation (debt) is secured on the asset, they're not independent. So there are several interests in the asset, one of which is a bank.

Forcing someone to close a leveraged position in a down market doesn't seem very fair.

Forcind somebody to sell property that he doesn't want to sell may not seem very fair either, but there you go.

Yes, the bank has an interest in the property, but the value of the bank's interest is necessarily limited to the market value of the property. The bank may not be happy to have to exercise their security in these circumstances, but the risk they might have to do so existed when the granted the loan and took the security in the first place.

Similarly for the borrower; when he took out the land and granted the security there was a risk that the asset would depreciate, and that the asset would be CPOed.

adocholiday

A few years ago I worked in a department that processed CPO's for some major public schemes and I can safely say from my experience that you would not need to be worried about negative equity in the event of your house being CPO'd. The money that some people got was astonishing to be honest, particularly when they went legal/to arbitration.

The process generally involved you being served with notice and being advised to get a valuer for yourself. These people invoiced the CPO'ing body directly so no money to be paid by the affected party. The CPO'ing body would also employ a valuer to act on their behalf. Each valuer would put a value on the land and claims and counter claims would be made until either a price was agreed or there was no choice but to go to arbitration. People who were losing slivers of land (say a portion of front garden or something) would get €x/sq.m that would be a general offer. Some would just accept it, some would fight it but there wouldn't be much in the difference. But people who were losing their house/enough property to make it non-viable, would get the market value of the property and a significant award for inconvenience that was very, very generous in a lot of cases.

This discussion about the greater good and being in the same financial position as before isn't necessarily true. Most people ended up significantly better off as a result of the CPO's I was involved in.

4ensic15

4ensic15 wrote: »

Proper compensation is the open market value of the property as independently determined..

CPOs can be (and almost always will be) way over market value. I've seen farm land worth about 8k an acre bought for close to 30k an acre when being CPO'd.

There is also plenty of scope for digging your heels in and getting better compensation or better terms etc so I would very much expect a CPO to be enough to at least clear a mortgage but I'd be surpirsed if it didn't also result in profit on top of this for the home owner regardless of NE.

donnacha67

If a portion of your property is being CPOd and you have a mortgage on it with a few years to pay who gets the compensation you or the bank. I cannot see a bank letting you take 50k cash when you owe 300k and have 7 years left to pay. Any comment on this would be great thanks.

We intend to still and will continue to live in the property.

D

3DataModem

If NE could stop a CPO, then every prospective CPO would gear themselves up the wazoo.

Q&A

https://www.boards.ie/discussion/comment/120934395#Comment_120934395

The bank has no say in your personal finances. You have a contract with them to meet your mortgage payments that's it. They can't chase you for a share of the windfall or anything else unless you default on that contract.

dennyk

https://www.boards.ie/discussion/comment/120940847#Comment_120940847

If the property in question is mortgaged, then the bank absolutely has a say in things. You can't unilaterally sell off a portion of your mortgaged property without the lender's authorisation, as the lender holds a lien on that property. Chances are your mortgage agreement has some clause in it that states the mortgage will become due in full if any part of the property is sold. That said, if the loan is old enough that there are only a few years left (meaning the current LTV should be very high) and the portion of the property that is being CPOd is only a small fraction of the total property value, then the bank might be OK with issuing a new mortgage loan on the remainder of your property for the full amount of the previous loan balance, if the value of your remaining property is still significantly more than that previous loan balance, so you wouldn't have to pay an additional deposit on the new loan in that case. If that isn't the case, though, then you'd only be able to refinance the remaining property based on its current value, which will usually mean you'll have to pay off a chunk of your existing loan out of pocket immediately (e.g. if you still have a mortgage principal balance of €150k but your remaining property after the CPO would only be worth €120k, then the bank likely won't be willing to loan you more than ~€108k at most on that remaining property, so you'd have to come up with at least €42k in cash to pay off your current outstanding loan balance in full).

Q&A

https://www.boards.ie/discussion/comment/120942498#Comment_120942498

The whole point of this thread is to do with the fact that it's a compulsory purchase order. It's not a unilateral sale. Neither the owner or the bank have a say with the CPO - that's what a CPO is.

The current lender has no right to any of the funds. As long as the OP continues to meet their repayments,the windfall is the owners to do with all they please.

Yes the CPO may effect the value of the underlying collateral (property) which may in turn impact the OPs ability to refinance elsewhere but that is a very different from the original lender having any entitlement to the proceeds of the forced sale.

dennyk

https://www.boards.ie/discussion/comment/120943584#Comment_120943584

The bank can't prevent the sale, no, but if the CPO sale of a portion of the property triggers a due-on-sale clause in the mortgage, then the bank would have the right to call in the full balance of the loan immediately. The fact that the sale was due to a CPO wouldn't invalidate that term in the mortgage agreement.

Q&A

https://www.boards.ie/discussion/comment/120945469#Comment_120945469

Even with such a clause it's far from automatic that the bank would want to avail of it in this situation.

Foreclosure in Ireland is both time consuming and costly exercise. Not a route a lender would choose to go down without good reason. Take the example of the bus connect CPO's in which some properties in Dublin have lost drive ways and gardens. It has not resulted in a wave of foreclosures.

For the bank to force early repayment in such a circumstance you would need a significant devaluation of the collateral and also be a borrower with a poor track record. Basically the bank would have to decide you and your home are such a lost cause they'd be better without you now (and all the costs to them that would incur).

If you're paying your loan it's in the banks interest to say nothing and keep receiving your monthly mortgage payments regardless of the change in value of the underlying collateral.

Bank would insist that the loan be repaid immediately as the asset it is secured against is sold. The owner would have to apply for a new mortgage for their new property.

CPO is a negotiation for the most part and as long as both parties are reasonable with their requests the process is usually fairly smooth and the seller usually comes out on top.

I had a property that was CPO'd. I was offered 15% over the valuation, moving and storage costs. I negotiated that I get planning at an alternative site for the same property and as they were knocking the original property I could take any materials I wanted from the original house. Took the shed, roof, windows, stove, heating system, floors, appliances and all fixtures and fittings. I was well ahead on the second property.

Q&A

https://www.boards.ie/discussion/comment/120947775#Comment_120947775

It's black and white when it's ALL the property being CPO'd. In your case there was nothing to inhabit and all the collateral was gone. Effectively there was no difference between a CPO and a normal sale.

From the OP's comments they intend to continue to live in the property post CPO. Assuming they're not chaining themselves to their home in an attempt to prevent demolition it implies there will be some level of house/collateral. So you can't automatically assume the same outcome.

https://www.boards.ie/discussion/comment/120948013#Comment_120948013

The OP indicated that the whole property is being CPO'd but its in negative equity. Where did the OP say that they intend to continue living in the property after the CPO

Q&A

https://www.boards.ie/discussion/comment/120948211#Comment_120948211

All the info for the latest discussion can be found in the post below

https://www.boards.ie/discussion/comment/120934395#Comment_120934395

https://www.boards.ie/discussion/comment/120948259#Comment_120948259

Apologies I was looking at the OP didn't spot it was from 2017.