Singing Pig

Hi everyone,

Would really appreciate some advice.

I'm in the process of negotiating on a deal that has some secured loans on it.

Details as follows

First mortgage  - £85,000 ( waiting for a completion statement which will no doubt have a hefty penalty for redeeming early)

Secured Loan - £12,164

OMV of property - £135- 145K

Vendors want to redeem an expensive 8.9% mortgage  and clear their secured loan in return for a rent back . They are struggling to meet the mortgage payments +  loan.

 I'd like to negotiate on the secured loans but realise there's no incentive for the lenders to settle less than the full amount as the clients are not in arrears. Are there any mitigating circumstances that can be  presented to the secured lender to accept less than what is owed to them? And yes, I know there's already at least 25% equity - I want to tart up the property with any monies I can negotiate on the loans.

I'll be talking to my solictor who deals with settling debts on Monday but meanwhile  it would be great to hear from any experienced investors who have had a similar experience.

Thanx

Hi Ruth,

This one is difficult to see because they're not in arrears.  The lenders will know with a simple drive-by valuation what the house is already worth so you're absolutely right that there seems little incentive for them to settle for less than the full amount.

If the debt was unsecured it might have been possible to negotiate with their creditors.  The reason lenders would be willing to negotiate in this instance is that you would explain that the owner is at risk of having their property repossessed.  If this were to happen the lenders (because their loan is not secured) would get nothing as your client would default.  You could then put to them a solution to reduce the total amount owing as at least they would get something.

In your scenario, you already have the deal that is at least 72% of the market value.  Perhaps you could explain what the rental values are, what they're paying in mortgage payments, and your estimate of the refurb so that we have a firmer understanding of why the secured loan needs to come down to make this deal doable.

But with the owners on interest rates of  8.8% you should be able to reduce their payments significantly, allow the owners to pay off their arrears, tart the property up and have a great deal to boot!

Richard Shepherd
Your Property Tutor

7 Free Property Sourcing Strategies 

Thanx for that PC.

I thought as much - you know the saying ...if you don't ask.....

We have agreed a rent of £600-630 pcm.  I'm awaiting a quote from a builder for works which is purely cosmetic and should be no more than £3K.

Hi Ruth,

You might be interested to hear that the redemption penalties can often be negotiated down on the basis that it is an illegal charge.

I haven't done it myself, but I can put you in touch with someone who knows how to do it.

Regards,
Paul.

Hi Paul,

Thanx that's very helpful. Will get in touch with you.

The redemption fees and also the second charge are negotiable! If you just ask them what they are willing to accept as a short settlement, I have found that 20% discount is readily given, without even having to negotiate.

The real trouble that you have, is that all is squeaky clean, the dirtier the better for negotiating. Snag is that credit rating will head south with dirt.

If you do negotiate a figure, make sure you get it in writing!

I have a deal that needed some negotiating on secured loans, but after valuation today it might not be required/possible. I would appreciate some guidance here.

Value £210k

PP £165k

1st Charge inc arrears £150k

2nd Charge £15k

The husband and wife are bankrupt, but the trustee only wants £500 from each of them. He will be paying off the trustee in a couple of weeks, before completion of the sale. They are in arrears with the 1st charge, and although they are now keeping up with the repayments they are unable to reduce the arrears and are now facing repossession.

They have had no arrears with Welcome(2nd Charge).

I was offering 165k if it valued at 205k which would clear all debts and leave the vendor with nothing extra, so  I said I would try and reduce one or both of the debts.

Now it has valued slightly higher so I will give him a few K more, but can I still try and reduce the debts? Do the lenders get sight of the offer price, meaning that there is no way that they will accept less for full and final settlement? If they do get sight of it, is it possible/legal to reduce the offer price and then try it?

I will ask my lawyer tomorrow, but I guess someone here will have experience of this.

Thanks

The holy grail.