Advice with regard to what to do with mortgage in default

Someone I know has a business which failed. The mortgage on the unit hasn’t been paid in over 18 months. The mortgage is with one of the guaranteed banks.
The property is worth less than 50% of the mortgage outstanding.
The property is currently vacant.

There is no likelyhood of the business ever working.
There is no likelyhood of the property ever increasing in value to a point where if it was sold it would cover the mortgage.
There is no prospect of renting the property for enough to cover the mortgage, at present if rented out it would only just about cover interest payments on mortgage.

Ideally this person would like to hand the property back to the bank.
This person has plenty of debts beyond their mortgage and are not in a good mental position to face their financial problems and have some other problems in the foreground too.

The bank aren’t engaging with them.
I think that this person should continue not to pay the debt. They should not rent out the property as a property with a sitting tenant is more difficult to market and the number of prospective buyers decreases.

The issues of outstanding mortgages needs to be addressed sometime soon so is it better to sit and wait and not make payments in the meantime?

Comments on morality of defaulting are unhelpful here. I’m of the same opinion that every mortgage defaulted upon is more debt that others must pay but this person’s position is quite hopeless and there is no way in which I can see them ever being able to service their mortgage.

So? What to do with that unit/mortgage debt.

Could they not declare themselves bankrupt and default on their debts?

Who took out the mortgage? An individual? A limited company? What is the situation with guarantees?

the business had a limited company set up by their accountant but I’d guess the mortgage is personally secured but I doubt it is secured against a family home otherwise the bank would have been pushing more forcefully already.

It’s hard to get consistent straight answers out of this person. They aren’t very rational at the moment.

wouldn’t it be better to wait for new bankruptcy legislation rather than going bankrupt now?

Rent the property.

A rented commercial unit is more valuable than a vacant unit.

In addition rates will be paid by the tenant.

Covering the interest prevents the debt going any larger.

The rental market for a commercial unit in a provincal town isn’t as boyant as you think it might be. local authority aren’t pursuing for rates owed surprisingly but once occupied again they will come after this person for rates from previous years.

There is so much of this head buried in the sand stuff out there, in reality this has been promoted by government, banks, and landlords as the debts mount on the individual rather than having to be written off. Anyway, it is not only a simple case of mounting debt, it is the waste of years of this persons potential, the completely unproductive use of money, and the creation of malaise within the societies/communities that are looking at these situations daily.

It is difficult to comment allot on this specific situation without some specifics, from what is written one can only assume the mortgage is private, rather than to a Ltd co., there is minimal if any equity, no income from the property, and little potential to sell or to generate income. Bottom line is the owner should go and throw the keys back to the bank and let them know he/she is happy to see them in court, that is the ultimate outcome anyway it appears. While that process runs, hope that the new bankrupcy laws are enacted and can be availed of. The only real benefit of acting now is mental health, knowing you are addressing the situation rather than getting up every morning and ignoring it.

Move on with life I say, but then again it is easy for me to say so as I don’t have this terrible burden.

I thought it had been brought in?

This is the key point. You are getting the typical ‘I’m all confused’ lark from a borrower. If they have plenty of other debts it means they have/had plenty of other investments that went wrong. i.e. replace every “person” in your story with the word “investor”

What is their personal/family financial position? Are there unencumbered assets? Is there family money? Is there a trade/profession?

The overall financial position is key to what to do in relation to this investment that is deep underwater.

This is key.

If the mortgage is a debt of a limited company, and there is no further recourse (guarantees etc), then your friend should consult an insolvency practitioner to find out their options in terms of liquidating the company (a members’ voluntary liquidation). In addition to the legal perspective, my personal option would be that that is morally OK, too. The bank has a contract with a business. The business has failed. That’s what limited liability is all about.

If there is a personal guarantee in place, I would personally see a moral issue with defaulting except as an absolute last resort. Your friend should try their utmost to rent the unit, even if it even covers just the interest. They should also try and cover as much of the mortgage as they can from other income sources. Why? Because they committed to doing so. And if they don’t pay, we do.

From a practical perspective, assuming there’s a PG in place, until the bank calls in the guarantee there is no point in them going bankrupt I would have thought, as there’s no debt to default on (as an individual).

It wouldn’t be a members voluntary liquidation as the company must be solvent and this one wouldn’t be. Mortgage debt is probably not in the company as the canny thing to do to avoid a double CGT charge was to own the business premises personally and outside the company.

I think it is time to do a statement of assets showing all their assets liabilities and income/expenditure they throw off, personal gurantees etc.

If there is a banjaxed non-trading limited company floating around then it is time to get an insolvency practitioner to wind it up - assuming there’s no funds/assets within the company to pay him an insolvency practitioner should take care of all that for 6/7k.

These things are a mess but they’re all solvable.

Thanks for the correction BG. Wasn’t sure about that.

The key thing is that 1000s of companies have gone broke during this bust. There’s no real shame in it. You see people at the top table of a creditors meeting where the liquidator gets appointed shitting themselves with fear. Sometimes creditors get aggressive but usually its fine. Someone from the Revenue shows up and asks a few annoying questions about the unpaid PAYE/PRSI and VAT.

If you face up to these things you live to fight another day.

As for the banks…they knew or should have known what they were getting into. If he has lots of other assets and is a good mark then fair play to them for being savvy in their lending. If not…fk them.