Messy break up issues

So, this doesn't entirely make sense but my friend is trying to tell me his experience and is asking for advice.

He has purchased a house with his partner, which he has only been with for 1 year

The mortgage debt is apparently more than the value of the house due to him putting his car loan on the mortgage (How would a bank allow this)?

Apparently there is $6000 in the redraw

He said he'd walk away and give her the house (which she wants) if he can have 5K to get back on his feet (rent, bond and some furniture)

They agreed and he signed the papers.

After signing they decided to renege on the deal.

Does he have anything practical he can do? And can you make sense of the story?

Would the bank allow him to take his name off the mortgage if they owe more than it's worth?

I figure the sum isn't enough to go suing over and prolonging a messy break up.

A lot of this doesn't add up to me. He parent's would have to be involved on her side as she is a 21 year old low income earner.

Any thoughts?

 

What papers did he sign?
Who doesnt want to proceed with the deal?
Was there a written contract for the deal?
Possible stamp duty issues may have become aware to the ex who now realised they cant afford the transfer?
Too many unknowns to really add any value here. The ex would need to have satisfy the bank (just like a new loan application) that they can service the loan and normal LVR rules would apply.

 

Yep, it doesn't make sense. I'm trying to help him figure all that out.

The stamp duty and I'd imagine LMI could be payable. And surely her parents would be behind her financially to make it work as she earns very little money.

He claims the debt is more than the house, which I find dubious. If, as he said, he put his car loan on his house after purchasing, wouldn't the bank re-value the house in order to allow that to happen? Meaning that according to the bank the loan is less than the house?

Also, he only signed these documents two days ago. I doubt they have even been lodged yet. Is there anything he can do?

 

If she is a low income earner, it's highly unlikely to go through no matter what he's signed. She'll need to support the loan on her own which doesn't sound possible from what you've said.

 

Yeah I think its family lawyer time - at least to get some initial advice on how to get the ball rolling on properly dealing with the house.

 

It's definitely family lawyer time. Maybe not if all that is a stake is 5k and he just wants to walk away pain and hassle free. But something doesn't add up. I have a suspicion he's being screwed over more than 5k.

She's only 21, my guess is that her parents will go guarantor or put their names on the loan... Probably even pay it.

But the thing that sticks in my mind is how he was able to put the car on the mortgage and claim that the debt on the house is more than its value. A bank wouldn't allow you to do this unless there was usable equity?

And why are they so keen to get their hands on a house with so much debt.

 

I don't think he's told you the full story. Do you really want to know?

 

I would have thought this was possible if the parents cross-securitised and went guarantor.

 

Duty could be exempt but as Jess says a bank may not let him off loan

 

Not if her income not enough

 

Yeh, that makes sense. It wouldn't surprise me if this was the case.

He has a solid income, so that wouldn't be an issue.

 

It sounds like she is getting the bum end of the deal if he is walking away with money, while all she gets is a house that owes more then it is worth and a inability to finance said debt anyway.
Possibly, the couple came to this agreement and then things changed when the parents realised how screwed she would be - not being able to pay the mortgage and not being able to sell to recoup the costs.

 

I disagree. Whoever ends up with that house will win in the long run. I highly doubt if either one walks away they will be able to purchase a house in the next five years.

I spoke to him again and he seems to think that the debt is only $15k more than the loan. I'd rather be in that position than walk away with no assets except $5k

 

Not if they go bankrupt because they cannot afford to keep it, and cannot pay off the debt with the sale.
It is only worth keeping if the banks will give you a loan to pay for it and can also afford the repayments of said loan.

15k is a lot of money to come up with on a low income and no savings.

Cannot blame the parents if they don't want to get on board. Most people in their right minds wouldn't want to pay more for a property then it was worth, even if they could afford it and the bank would give them over 100% of the value.

I say this as someone who happily took out 105% home loans on two seperate properties. It worked out for me because of a rising market and the fact I could afford the repayments and the bank was on board with servicibility.

 

My advice, don't give him advice other than he needs his own professional advice and then move on from the topic. No good comes from getting yourself involved in such things, no matter how good a friend.

 

Three words to live by;
Binding Financial Agreement

 

I'm betting they used a family guarantee and his income was used to service the loan. Simple enough.

If she wants the house but doesn't have the income to satisfy the lenders, she's not getting the house. It will either have to stay in joint names or they'll have to sell it (which will not end well if they're in a negative equity position).

 

That's basically what I have told him. Or the advice I have given him so far. But he needs to get this advice armed with some basic information about his circumstances and some idea of what is going on and what some options might be to ask and seek advice about.

Solicitor will ask a question, he will say I don't know... There goes the initial consult and a whole bunch of his money.

 

That's helpful, thanks.

Would they lend her the money if the parents put their name on the loan and used their house as security? I'm pretty sure that's the angle they are going for?

 

Only if she's got enough income to meet their lending criteria. Equity does not equal ability to repay.

Lenders can only take guarantees for security purposes, not for repayments.