Mortgage nightmare

[Priesty]

I know someone who has a property valued at �120,000, with a mortgage of �102,000, Secured loan of �53,000, Credit cards of �15,000 and other loans of �16,000. The worrying thing is that the secured borrowing totals �155,000 when the house is only �120,000. Apparently the secured loan company mixed some paperwork up, incorrectly valued the house at �160,000 which would explain how they managed to borrow that amount. Based on this error, should the secured loan company convert the loan from secured to unsecured? or are they stuck with the negative equity.

[matchmade]

An odd story - how on earth did this person think they could borrow �53K when they knew the house was worth �120K and they were already mortgaged to the hilt? Did they misinform the lender? If the house is really only worth �120K, then I'd advise your acquaintance to declare bankruptcy. The �53K lender is going to want their money back eventually even if they made a mistake, so they will pursue him or her for the money even if they only get �5K when the house is sold. The secured-unsecured thing is an irrelevance: it's all debt ultimately. This person will then have debts of �15K + �16K + at least �48K, and no house. Unless they've got a good income to cover the mortgage interest and somehow start paying back the debt, they're stuffed, frankly. I'm afraid I recommend seeing the Citizens Advice Bureau as soon as possible and think seriously about going into bankruptcy for 2-3 years.

[themas]

They won't get the secured loan co. to convert to unsecured. If there was no fraud or misrepresentation by your friend then bankruptcy may well be the best solution. They will lose the house - but it is likely they will do so anyway unless they can afford long term to pay the instalments on all the secured debt and something off the unsecured.

If they can afford the payments then they can carry on as now - the secured loan co. is presumably not going to be bothered about the negative equity so long as they get their payments regularly.

[Priesty]

Common sense should have told them that they were borrowing over 100% of their equity I agree. They are on prety good incomes. The loan company gave them a max advance based on an incorrect valuation figure obtained by the loan company itself (they mixed up val reports from another client).

I think the bankruptcy is gonna be the only choice.

[Didwot]

Before going bankrupt they should see if they can do some deals with their creeditors. If the second chargee were to be aware of the serious financial problems of your friend, and that if the property were sold by the first chargee they would be unlikely to get anything, they may take a fairly small sum in full and final settlement. Likewise the other creditros. It only works though if they can get good deals with everybody. The first chargee will not do a deal because they are fully secured.