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Separating and Underwater :-(

Discussion in 'Property Finance' started by fancypants, 11th Jan, 2017.

  1. fancypants

    fancypants Member

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    Hi Everyone

    I'm looking for some ideas to help out a close friend of mine. He's going through a separation and he's trying to transfer his previous PPR into his own name. It's currently a rental.

    The house is worth about $330k and debt is $350k (Perth). He has no savings to bring down the LVR.

    Any suggestions? One scenario he was throwing around was finding someone who wants to buy half the house, they apply for the loan together and the new borrower puts in whatever is required to make the deal work.

    Would this work?

    Thanks in advance!
     
  2. larrylarry

    larrylarry Well-Known Member

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    I assume the ppor is owned in joint names? If so, how is he going to do that without wife's or co-owner consent? I also assume he hasn't sought legal advice about this.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It would work, but could open up a whole new can of worms. He might be better off getting rid of it and having a fresh start. Or living in it and paying his ex half in rent.
     
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  4. Indifference

    Indifference Well-Known Member

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    So it's worth 20k less than the debt?....... ahh.....wtf...
     
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  5. Ross Forrester

    Ross Forrester Well-Known Member Business Member

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    I think a fresh start is a good idea. An ex is an ex. You don't want to be paying the ex rent. That will make a grumpy ex.
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    many parts of perth are 25 % down on 18 to 36 mths ago.

    have more than one developer client on the books where the 22 % margin is now gone and pulling equity is more about pulling survival

    ta

    rolf
     
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  7. Blacky

    Blacky Well-Known Member

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    Wow - what area?
     
  8. fancypants

    fancypants Member

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    Thanks everyone.

    Jess, would this just be a standard loan application then at 95%? The new borrower would then have to chip in ballpark:

    $7k stamp duty
    $16.5k for 5% of $330k val
    $20k to cover the undewater portion
    LMI if the bank doesn't capitalise this

    So we're talking ~$45k for a 50% share of a $330k asset. Probably not that attractive to potential investors.

    Thanks.
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Bit of a pickle given that the house is worth less than the loan.

    There are some lenders (not many) where one name can be simply removed from the title and the loan in the case of a separation. Most lenders won't go for this however. In most cases this means that either:
    a) Loan needs to be reduced.
    b) Additional security needs to be offered.
    c) A combination of the above.

    I've helped a lot of people refinance out of separations, but only a handful where there wasn't enough equity to find a solution. In the two cases I've seen, the two parties came to a written agreement where one person assumed responsibility for the loan and collected all the rent.

    When the value of the property increased sufficiently, the party taking responsibility either refinanced the loan and changed the title to their name only, or the property was sold. Unfortunately in a depressed market this can take a bit of time.

    Lesson for life: Choose your partner well. If in any doubt, wait.
     
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  10. tobe

    tobe Well-Known Member Premium Member

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    How many valuations has your friend done? Might be possible to do a 90% lend with Adelaide bank and use their linked cc for the remainder. Depends on val of course.
     
  11. neK

    neK Well-Known Member

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    So the bank has valued it less than the loan.
    Is selling it to the market an option?
    Generally the banks are a little more conservative than the open market.
     
  12. MTR

    MTR Well-Known Member Premium Member

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    I am not surprised

    I expect many developers stuck with stock that they can't sell.
     
  13. albanga

    albanga Well-Known Member

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    I really struggle to understand these situations when their is a desire to hold a property which clearly along with the marriage has not worked out. Sell it and start fresh! Why try and make a bad situation even worse?
    Sell it, take the loss with you, learn from your mistakes and move forward. Next time you mKe a profit use the loss towards it.
     
  14. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Selling cost, purchase costs to replace it, these can run to 10%. There may also be capital gains (not in this case obviously).
     
  15. albanga

    albanga Well-Known Member

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    I understand the costs of exiting but Small price to pay IMO compared to the heartache (and headache) of trying to work out how to make it work and then living in a house your marriage failed in.

    In this situation they are already 20k down, throw in 10k selling costs and they need 15k each to discharge the mortgage.

    I also appreciate re-entering but we are talking about negative equity with zero savings in a dead market. I would think renting and restarting would probably be a better idea.

    And this is clearly a capital loss. So selling whilst it would hurt atleast can be used when you get it right the next time.

    Just my 2 cents.
     
  16. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Tough situation. The only likely result is to take on some unsecured debt (ie personal loan) to bring the effective LVR secured on the property down. Get a valuation from a number of lenders and try get it through as a 90-95% LVR elsewhere.

    Cutting and taking the loss may be the best course - they'd need to weigh up the realised costs of selling vs sunken costs from digging this deeper with trying to hold the property.