April 15, 2024


Mad about real estate

My house is worth less than my mortgage and I can't pay the shortfall

In a time of falling house prices and a stagnant housing market it is not hard to see that many peoples houses will be worth less than they paid for them. For those who bought at the top of the housing bubble the difference between what they paid for the property and what it is worth may seem soul destroying. The thing to bear in mind is that this is only a paper loss, and if you have no intention of selling then there is no loss.

The problem occurs when you are forced to sell, for instance you can no longer afford the mortgage, or your relationship ends, or the house is repossessed and sold at a loss. In these scenarios the difference between what is due to be redeemed on the mortgage and the sale price achieved less the costs of sale, can be very large indeed leaving a huge shortfall for which the mortgagee is personally liable.

Never is this greater illustrated than from the calls that I am getting from Ireland where on a daily basis, I am giving advice to home owners there who have been unable to keep up mortgage payments and are having to hand their properties back. It is very common to see the prices obtainable on property to be only half the value still outstanding on the mortgage. This is leaving huge sums owing on the shortfall by the borrowers which simply will never be paid off.

I am seeing mortgage shortfalls routinely between 100,000 and 200,000 Euro’s. The question I am constantly then asked is if the shortfall can be dealt with by the borrowers going bankrupt. I am able to advise that if the borrowers move to and establish a centre of material interest in England, they can go bankrupt and the mortgage shortfall will be written off leaving the borrower debt free.

It actually doesn’t matter of the loss is actual or not yet crystallised. If you have a mortgage shortfall and hand the keys back into your lender and go bankrupt, your interest will vest in the Official Receiver and when the property is eventually sold that loss will be included in your bankruptcy.