Negative Equity & Cross Coll

Hi all,

Long time lurker, first time poster after some thoughts.

We are in a bit of a pickle, have 2 properties in mining towns, one loan crossed with both properties and we are now on P&I with them.

We have a bit of a cash buffer in the offset which is covering the P&I repayments, but with current expenses and rents, this will probably only last 3 more years until exhausted. At the moment we are optimistically about $350k in negative equity.

We acknowledge that we stuffed up and didn't really do a great deal of due diligence prior to purchasing, but ultimately we just want to move forward now and get on with our lives.

Has anyone had experience in selling in this situation? Our broker has suggested that if the loan is in good order at the time of sale, they would work with us to see the rest of the debt paid and not call in the loan.

My main concern is that if we sell one and the bank doesn't discharge it, then we aren't going to get anywhere and will just end up bankrupt now or in a few years, where as we want to pay it off, but the holding costs and the P&I repayments are just killing us. We would comfortably be able to service a P&I loan of $350k over 10 years at a higher rate if the banks would be open to that.

In the current banking landscape is that something that the bank (we are with NAB) would likely be open to discussing?

Thanks in advance.

 

Any other property (eg ppor) that could cover the 350k?

 

When you cross collateralised you pretty much put yourself at the mercy of the bank. It's up to their good will to allow you to sell the property and have an unsecured debt, which they're probably not going to be happy about.

You could offer another asset (if there's another property you own that has equity in it, or perhaps that of a relative under a family guarantee, which no sane third party would agree to under these circumstances) as security for the outstanding debt.

This is one of the many reasons why cross collateralisation is generally a really bad thing to do.

 

There are several forum thread discussing this. Do a search for 'gladstone'

 

Thanks all, yep have read teh Gladstone threads including ems story, but it wasn't overly clear on whether she had unsecured debt at the end or if she had other security to offer.

Unfortunately we already sold our PPOR to get to this point, so no other assets except $30k across 2 cars.

Ultimately if we go bankrupt, the bank will lose out anyway as there is no mortgage insurance involved, so it would definitely be in their best interest to work with us.

Would there be any benefit in approaching them before we put the houses on the market? The concern there is that they would revalue and call in the loans straight away, but as I said we don't want to get the contracts signed and then fail at settlement because they wont release the security.

Have discussed a family guarantee with my wife, and whilst it could be an option, and we are committed to paying it off, I don't want to put anyone else at risk given that have already lost our house.

 

Talk to the bank. They're the one's you're going to have to negotiate with sooner or later, better to do it sooner on your terms.

Family guarantees tend to require the guarantor geting legal advice. I can't imagine that a solicitor is going to be okay with this under these circumstances.

 

As Peter has said - best to speak with the bank, you won't gain anything asking around on the internet as they won't have a clue.

You will want to weigh up your ability to repay the debt vs pulling the bandaid off via bankruptcy and the impacts from going down that path. There are professionals you can speak to which can help you through this process. Don't delay the inevitable, make an informed decision now while options are on the table as this will give you the best likely outcome.

 

I would talk to NAB. They will do everything they reasonably can to help you.

If you end up bankrupt then you can start again after five to seven years. Sometimes it's less stressful for people to declare bankruptcy. I know that sounds counter intuitive. Just know that there's life after bankruptcy either way.

You might want to try and talk to a financial counselling service for advice. Though they tend to be busy.

 

Thanks for all the comments, really want to avoid bankruptcy for various reasons that I wont go into, so will get in touch with NAB.

Whats the best way to approach them? Should i go through my broker or contact direct? Do I go straight to the financial hardship team?

My broker was concerned that alerting them early may be less favourable than if we had already contracted to sell one.

 

Have you sought legal advice?

 

No, not at this stage. Wouldn't even know where to start with a lawyer?

What legal advice would be useful here, or would a letter drafted be a lawyer be more useful?

 

There may be a case for not letting the bank know early on or for the opposite - to let them know. You also have to prepare yourself for bankruptcy just in case.

I suggest you first make contact with some of the posters on here who have gone down that road. But beware if any suggest you get into expensive negotiation companies.