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HELP – I can’t pay the mortgage!

The worst thing you can do is bury your head in the sand and hope that the problem will somehow go away; it will not. The first thing you must do is discuss the problem with the bank that loaned the money

pay mortgageINCREASING numbers of people are struggling to make their mortgage payments on property they have bought in Cyprus. Having fallen victims to the current financial crisis, some have been hit by the Sterling/Euro exchange rate while others, unfortunately, have lost their jobs.

Clearly, this is a very stressful situation for the individuals concerned and their families. So what can you do about it?

The worst thing you can do is bury your head in the sand in the hope that the problem will somehow go away; it will not.

The first thing to do is discuss the problem with the bank that loaned the money – they may be willing to help. If you just do nothing, the bank may get possession of your property in Cyprus and a money judgment against you. They could then register that judgement with the Courts in England, Wales and Scotland and seek possession of your UK assets to recover the debt. However, that would take the bank a very long time – and it is unlikely that they would want to pursue you though the UK Courts. However, this is an option open to them.

Dealing with the bank

  • Be honest with the person you deal with at the bank and explain your problems to them.  At first, they may try to make you feel guilty about your situation and say it’s up to you to sort things out – or they may try and scare you by making you believe that if they foreclose they will chase you for the debt in the UK. Although the banks in Cyprus do have the power to do this, it is unlikely they will do so unless there is a substantial negative equity on the property.
  • Always answer the telephone when they call you, even if the only thing you can do is let them know that you cannot pay. Ignoring their calls sends out the wrong message – and who knows, they could be calling with some good news. And if they leave a message asking you to call back, make sure you return their call. Local banks are accountable to their headquarters for such cases may show more understanding and willingness to help if they can contact you for updates.
  • See if you can make interest only payments for a time until your back on your feet. If successful, this will reduce your monthly payments – but you will need to catch up on the lost ground at a later date.
  • See if you can take a ‘payment holiday’ until you are back on your feet. Some of the property development companies in Cyprus have agreed ‘payment holidays’ with their banks. This involves adding the unpaid interest of the loan to the principal and increasing the repayments to cover the extra amount once the holiday period is over.
  • If the bank appears unwilling to help, ask them when would be a good time to see them to formally pull out of the deal. Taking such action will not absolve you from paying the debt, but it could have the effect of making the bank think again.
  • If the bank is totally intransigent and leaves you with no option but to hand back the property, you should try to come to an agreement with them that they will not a money judgment against you. You will probably need a lawyer to put your case, which will be money well spent.

One thing to remember in all of this is that banks are not estate agents. As they already have more than €4 billion worth mortgages, foreclosing and repossessing your property should be a last resort option for them.

One other thing you should try is renting the property to help cover your mortgage repayments. Forget short-term holiday lets, the market’s dead. Look for long-term rentals (one year or more) and even if you have to rent below the market rate, you should be able to get a few hundred Euros a month to help with the repayments.

The following article was written by Diarmaid Condon, an independent property consultant in Ireland. It was published recently on www.OverseasCafe.com.

I have a distressed property overseas – what should I do?

This is a predicament which is, unfortunately, currently very common one for Irish overseas property purchasers, particularly those who have purchased holiday property in resort locations for investment.

The first advice to give anybody in this situation is – don’t panic. If you make panic decisions they will, invariably, be very poor decisions, made under duress, and the one thing you can guarantee is that they will not benefit your pocket.

You may have read that there are ‘vulture funds’ out there looking to pick up distressed property at bargain basement prices. These funds specialise in taking advantage of ‘distressed sellers’ who are making decisions under duress. The first thing to ensure is that you are not giving a valuable asset away for a price far below what it is worth. You may have made the decision to purchase in haste and feel that, with mature recollection, it wasn’t such a great decision. Don’t add to this by making an equally poor decision when disposing of your asset.

The one comment most made in such situations is that this ‘asset’ is not actually an asset, but an expense. This may well be the case in the current climate, but it is advisable to do everything you can to maintain its ‘asset’ status before deciding to jettison it. There is no point in losing money when you buy and again when you sell. If you have already made the purchase there is nothing you can do about the former, but you still have the ability to do something about the sale of the asset.

It is difficult to be specific as to what you should do in every case as there are very many different ways in which property investors can be distressed. The most common form is those who purchased with the intention of letting the property when it has completed. On completion, quite a few of these discover that the ability to achieve rental income was either overstated or, in many cases, never existed at all.

Another common problem at the moment is an inability to complete. Most overseas resort property was purchased off-plan over the past five years. The investment climate at that time was vastly different to what we are facing at the moment. Consequently, there are a significant number of investors who cannot afford to complete on the property now that the final payments are due. This can be due to a change in their employment status or a change in the lending practices of a bank on which they were relying for funding.

Others have put deposits on properties which they intended to ‘flip’ for a profit before or at completion. Now that the properties are completing they are finding that the market is not there to flip them. Even if they could do so, they are now finding that what they would receive is far less than they actually paid for the properties because markets have retreated so much in the interim.

There is no doubt that there are severe problems out there for many buyers, but the problems can often be overstated by an overly negative press and a constant barrage of gloomy economic predictions.

In the middle of an economic maelstrom is the very worst time to try to sell a property so, if you’ve already purchased the property, the first piece of advice to be give would have to be ‘hold on to it if at all possible’. Admittedly this isn’t possible for every property owner, but, if you can postpone the potential sale until market conditions improve to some extent, you are giving yourself a far better chance of achieving a reasonable return on your investment – or at least reducing your loss. Certainly you should receive a far better return if you can hold on for a year or two than anything you will receive now. At the moment we are more than likely residing at, or close to, the bottom of a market cycle … it is the worst possible time to try to sell a property.

But what if you’ve purchased on the basis that you were going to get a local mortgage, but cannot now do so because of credit has dried up? The first thing to do here is to look carefully at your contract. Have it translated if you haven’t already done so (you’d be amazed how many people don’t bother) and check to see if your contract contains a clause entitling you to a return of your deposit in the case that finance cannot be obtained. In all honesty this is unlikely to exist unless you, or your independent legal representative, specifically asked for it. If it is the case that you have been recommended a legal representative by the agent or developer selling you the property you can be nearly guaranteed that this clause does not exist – hence the value of independent legal representation.

If the clause does not exist then you need to have your legal representative talk to the developer, explaining your predicament, to see if alternative financing can be obtained. It is not in the developer’s interest to lose you as a client – they are an extremely scarce resource at the moment – so use this leverage to ensure that your are accommodated to the greatest extent possible.

If you have thought it through fully, know your figures and are still absolutely convinced that this is a very poor investment decision then you may simply have to withdraw from the purchase and lose your deposit. It is, however, worth fighting to have the deposit returned. Depending on the country in which you purchased, you may be entitled to have it given back to you – or at least have some of it returned.

There are those currently considering taking the ‘jingle mail’ option (sending the bank the keys in the post and ceasing all loan repayments). Just be aware that this is not necessarily the end of the issue. The bank is entitled to sell the property for whatever it can get (probably not a lot at the moment) and then revert to you for the balance due. It is not, therefore, as clearcut an option as some may have you think.

If you do have a property that you wish to sell there are a number of avenues open to you – although it is, admittedly, far from the ideal time to consider this option. The cheapest of these is to list it on a free property listing website such as www.OverseasCafe.com. Other sites may charge a small fee for listing the property or you can list it with an agent that uses multi-listing sites to promote its listings. It is also worth checking out websites which offer local property for sale in the area in which your property is located. You could also look at auctioning the property through companies such as www.allsop.co.uk.

If you can’t sell the property then you may be able to let it until the market reaches equilibrium. There are a plethora of sites such as www.holidayhomesdirect.ie which offer such a service, although you will need to differentiate whether your property is for holiday or general letting use. There are generally local sites, such as www.kyero.com in Spain, which will be more appropriate if you are looking to let your property for a longer period.

It is difficult to give advice that will suit all clients in a short piece such as this but it should at least outline that there are options out there, if you are prepared to step back from the situation somewhat and take a more objective view.

Diarmaid Condon

http://www.overseascafe.com

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