Complete meltdown - what to say?

I am seriously worried about a good friend of mine (or more correctly a good friend’s husband, though she is not in great shape either) who got in way over his head in property, is now in real trouble and is close to suicidal. And I don’t mean that metaphorically.

He has almost 1.2 million in debt on 6 houses that are now not worth anything like that. All on an interest only loan. That may make him sound like a greedy pig who is getting no more than he deserves, and maybe that is so. But at this point he and his family (2 kids, 7 and 12) are really at the edge.

On the upside, he has a secure job (civil service) and she has some part time, though less secure, work still. All the houses are in very good shape, are rented, the tenants have all been renegotiated with and are happy and likely to stay for the moment at least. On the downside while the edifice is holding up (just about) now, when property taxes and so on really hit, they don’t believe they can continue making payments even with cutting everything to the bone. If she loses her job they are fucked instantly. At the moment they are essentially living on her part-time income.

The bank are telling him sell for whatever he can get and just suck up the reality of having to pay off any remaining debt. His wife is trying to persuade him to hold on and see the storm though, somehow (which I have to say seems to me may simply not be possible).

I knew nothing about this until a late night with too much wine last weekend in my house, when they sort of broke down and blurted it all out. I didn’t even know he had any houses other than where they live. I really don’t have a clue what to even say to them. They really need support if only of the moral kind. Any suggestions? If you were in such a mess what would you do?

I believe the prevailing feeling here is that property prices are A) likely to drop a lot further before we see bottom and B) not likely to recover to 2006 levels for years (as in the 10+range). Personally I think interest rates are set to go up soon and you’re friend is only going to get deeper and deeper into the sh*t as time goes on.

So I would tend to side with the bank’s advice.

Impossible to give advice unless we know where the properties are, what kind of houses they are and what’s left on the mortgages.

The only real input is that your friend shouldn’t be afraid to take a small loss (assuming they even can at this stage).

The family home may survive, he has a job, healthy children. He has been foolish with money, he is not a unique breed of Irish male. He borrowed this money from the bank, not the mafia,( the mafia would never have leant it to him) What’s the worse that can happen? The bank takes his crappy rentals away? He ends up with a with a large debt that will be deducted each month from his wages? The repayments on neg. Equit. money could be viewed as fees for the university of life, or a retro tax. It is not the end of the world. Having a job, being able to get up in the morning and do something should be celebrated. Loosing money know matter how much is no disaster, unless too much self image is moulded from it. He will with out doubt be a better person. I bet he’s between 25-35 and doesn’t have a proper ‘80’s’ under his belt!

Thank you very much for your replies. And especially to Open Window for making a new forum for this, I honestly think, having spoken with a number of people about this over the last couple of days, that there is terrible emotional fall out from this in a lot of family homes up and down the country.

Doris, you are right in a lot of what you say and it’s the note I’ve been taking when talking to them. I find myself in the unenviable position of now being a sort of dumping ground, as they’ve been sitting on this and telling nobody how bad things were and now that they’ve told someone can’t seem to stop talking to me about it. Actually I think they just cannot stop talking about it or thinking about it at all. I am truly worried about this man’s mental stability. He is constantly beating himself up for his stupidity, going over and over and over the mistakes he made like a broken record. He looks haunted and sick, is not sleeping at all and has aged 10 years. He can see no light at all.

Bizarrely he had been through the '80s (he is 48) and that in way was the root of it all - they had a lot of equity in a home that suddenly became insanely ‘valuable’ and was constantly being told he should leverage it, which he eventually did. So the home is actually hocked into this insanity also. Of course he started too late and so has been hit very hard.

Here’s what I’ve picked up and am suggesting to them as of now (and I really am only suggesting they ask someone with expertise about this, as truly this is foreign territory for me, but I’m learning fast).

  1. They get the family home out of this mess - which they can in fact do as it’s on a separate mortgage and there is a really bad, empty house (half bought/half inherited with the intention of renovation) they can sell for whatever they can get which will clear or at least reduce the charge on the house they live in.

  2. They move the family home completely into the wife’s name. It’s in joint names now, but the bigger loan on the rented houses is in his name only.

That way they are left with much the same disaster on the rented houses but at least their family home is safe. Then and only then should they start making decisions on what to do next.

Although they have been incredibly stupid, they are really nice and decent people. I’m just hoping they can salvage their family and their sanity if not their money.

I’m not an expert by a long shot but I think sure the banks can get around this trick of they go after an outstanding debt. Just FYI.

Moving assets from one to the other will not make any difference now, it may have before the borrowings were taken out but a court would be asked to rule and would rule for the bank .

If he bought at the peak he has lost at least 400k on paper . Could he sell the family home itself if it is in a more liquid market and move into one of the rentals ?? IE has the family home fallen by less in value than the rentals and is it more sellable ??

He will also have to offload a rental or two so that they have some money to live on.

It seems that interest rates are going to start rising within the year …possibly just after christmas …so this is urgent before the hole starts to get deeper .

Sorry for the bind you are in Astonished, you were selected as a crutch and it sounds like these people needed one .

I suspect this is being repeated behind closed doors all across the country.

Its very sad but, on the bright side, times like this can show that the real value in life is in their marriage, kids and family.

He still has his health and by the sounds of it a fairly secure job. Even with all the debts he can can get though this with a roof over his head.
He took a punt on property and lost it doesn’t mean he should end it all. I would strongly advise him getting some financial advice and drag the wife along for a reality check.

Their first loss is their best loss so liquidation of their assets and debt reduction is advisable. It will then be a bit more manageable especially if interest rates rise.

Hey astonished, welcome to the pin!

I think it is very important that your friend puts his plight in perspective and understands that there are many, many people in the same or worse positions across the country. Difficult as that may be, he needs to know that he was not alone in being foolish and should not feel inferior for it.
It sounds as though the mortgage on the PPR is quite small, above all else he needs to keep payments up on that, while the banks may go after him for everything, they are unlikely to get their hands on the PPR assuming it is reasonably modest. He may even want to consider defaulting on the rentals in order to pay of the PPR as quickly as possible, but he needs serious financial advice on that. He needs to prepare for the worst and somehow get it into perspective that life goes on, family are the most important, and he is not alone. Preparing for the worst often allows one to appreciate even the slightest improvement as being just that rather than less worse.

If he still has all of the properties after 2 years of media negativity I don’t think your friend will relinquish a single property until he is absolutely forced to by a third party.
I think you misunderstand him:
Basically he wants to hang on to as much property as possible regardless of the financial illogic.

Furthermore 1.2 million debt on 6 houses (no matter where in Ireland - and certainly not Dublin) is not that bad.

Very good advice here.

Your friend is lucky to have you but I think you should suggest that he sees a doctor. The effects of stress and a possible breakdown could result in him being out of work - the last thing he needs.

I think he should see a doctor or a counsellor.

Agreed but valium wont deal with the financial problem. Needs to work out a proper financial plan looking at every option a la 2pack’s post.

There is always a solution but the least worst one needs to be found and implemented.

Astonished,

I think the best advice that anyone can give based on the information you provided is that the couple should look immediately at paring down their debt as best as possible. You say that all the properties are rented, that consistent cashflow gives them significant options. Keeping good tenants sweet is essential in getting themselves out of this mess. If that means cutting rent along with market trends so be it as the other alternative involves massive costs in letting voids, marketing costs, maybe having to settle for less desirable tenants and probably having to settle for even lower rents than the previous tenants were prepared to accept.

They should look at immediately selling the rented property that offers the largest likely rent to sale price ratio. This will more than likely be the most desirable property among the 6. As we have no idea of what or where these properties are then we have no way of answering that question for you. But by selling the property with the highest rent to sale price ratio this will have the biggest impact on reducing both debt and interest costs relative to rental income. If that sale is a success then move on the next property with the highest likely rent to sale price ratio. If the bank see they are making any progress in paring down debt then that, combined with continuing rental income, should keep them off their backs.

That at least is how I would approach it although I am loathe to give advice to people in such a position as we are invariably not in receipt of the full facts and there may be other factors at play.

If this man is suicidal then the first thing he needs to do is to seek medical help.

Can we focus on the property workout? That is after all, what this part of the forum is about…

I wont give advice in respect of this without knowing the persons full financial position but **if it were me ** I would have a come to Jesus meeting with the bank/s and after looking at the mess I would propose the following if suitable for the current borrowing and to facilitate repayment of the loans over time.
I would look for a moratorium on some of the loans for a period to allow capital repayments to be made or increased on others (if possible rejig the time frame on some of the borrowing there by extending it and so reducing the payments) while increasing the payments on others, to some degree slightly nama-esque but actually paying for it eventually or off-loading when the market is in a better position to allow the sale.
I would also seek professional help to do this and professional help to sort any personal issues out. But only if that were me as one cant comment on anothers position if one doesnt know what it is.

If the man is suicidal then he needs urgent medical attention. No ammount of advice, financial or otherwise will change that fact.

The OP needs to listen to this advice and urge her friend to seek the best medical help he can afford now. After he can work out his financial affairs.

He needs to remember that he has a family that needs him.