Security substitute with negative equity

Discussion in 'Loans & Mortgage Brokers' started by Greeny_92, 24th Feb, 2019.

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  1. Greeny_92

    Greeny_92 New Member

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    24th Feb, 2019
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    Location:
    Perth
    Hi there,

    I'm hoping that someone might be able to please help with any info/ experience in substituting security for a mortgage with negative equity. The bank (ANZ) is giving us the run around and the broker won't respond to any questions.

    It’s tricky to explain our circumstances but I’ll try and explain it to give the context required:
    • Built a house in (Perth outer suburb) in 2014.
    • Loved the area so committed to second build in same area- commenced 2016. To do this we put in savings and redrew on the equity on the first mortgage.
    • Baddddd things happened in the area (literally weeks after committing!!!) and we realised the area is so not for us anymore. The events literally have left me with PTSD, so we left the area and cannot return.
    • First property is rented out. The second property was finished in 2017 and went on the market 6 weeks after getting keys. After 9 months we finally sold it and whilst relieved to escape, gained a $50 000 personal loan to get out. Not to mention the increased mortgage on the first house. Still, getting out alive and not yet totally insane, it was worth it
    • Prices have continued to drop and original property is worth so much less than when we built.
    What we are trying to figure out is where to next. We have a dream of living in our own house again, and want to rid ourselves of the first property as soon as possible, and close that horrendous chapter. Currently however, the mortgage is at approximately $405 000 and a number of agents believe it to be worth around $350 000 at best.

    We are seeking to find out our options for getting rid of the current house, without getting an extra $55 000 personal loan for the shortfall. We are then wanting to buy a house to live in, hoping to purchase a property for around $385000.

    Moving forward, we are wondering if there is any scope for us to use a 'security substitute' option. Can we put this $55000 shortfall onto the new property loan?

    Any experience of selling at a loss would be greatly appreciated. We are trying to get us much information to make an informed decision and are dying to be in our own home again.

    Thanks in advance!
     
  2. Trainee

    Trainee Well-Known Member

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    Do you have other savings?
     
  3. Greeny_92

    Greeny_92 New Member

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    We are saving up at the moment, not flushed with cash at the moment sadly! Putting in the full shortfall amount would mean living with family another 6 months so not impossible, but wondering if there are other options.
     
  4. Trainee

    Trainee Well-Known Member

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    The other question might be, what are the prospects of the property?

    Interested in what bad things happened in the area. You make it sound like a bomb hit it.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    What other security do you have?

    If none then impossible to sell and secured the $55k against the new house which you would otherwise have to borrow almost 100% for
     
  6. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    Level 2 287 Collins St Melbourne VIC 3000
    To do just a pure security substitution you would need to settle both properties on the same day. You may be able to do a bridging loan, but given that you don't have the $55,000 cash on hand, how would you get the LVR of the new property down to an acceptable level?
     
  7. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    At what LVR were you planning to buy the new house at? If it's a low LVR there might be some possibility of increasing it using LMI so that you can redeploy the funds to covering the shortfall.
    Do you still have the personal loan debt from the last sale? You may find that you won't be able to service a new loan until that is gone.
    I'm not a broker but there are a number of things to consider here
    - payment of original shortfall loan
    - deposit for new house
    - how to reduce the shortfall on your old PPOR

    From a tax perspective if you continue to live with family or rent you have up to 6yrs to still call your old house your PPOR so it can be sold CGT free. I know that it's emotionally draining on you but if you have a property manager to handle everything could you just simply keep renting it out until it's worth more? A property manager should help with keeping your emotional distance from it.

    Do you have any other assets you can sell to put towards debt? ie sell cars and buy one clunker to get around in and use public transport?

    And I'm sorry you've had to go through this. Events and/or the market have dealt you a blow but it's good to see you working towards the light at the end of the tunnel. I suspect it's going to be a bit of a wait until you can get there though.
     
  8. thatbum

    thatbum Well-Known Member

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    I don't understand how a security substitution would help here. If you don't have any money to cover the shortfall, then how would you get a deposit together to buy another property?
     
  9. MC1

    MC1 Well-Known Member

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    Sorry, but it's not going to happen
     
    Terry_w likes this.