Success Story: Settling a $785,000 Mortgage Shortfall for $26,000

Do you have an investment property that is now worth less than the loan taken out to finance the purchase?

Have you sold the properties and are now owing a large amount to the bank?

Have you wondered whether the debt can be settled for less than the amount you owe?

The short answer to the last question is, you can. We have written about how you can do this here and here. We have also helped numerous clients settle their mortgage shortfall debts. You can read about them here, here and here.

Below is another example of how we helped a couple settle their mortgage shortfall of $785,000 for just $26,000 – less than 4% of the debt owed.

Background Information

Back in 2018, a husband and wife approached us for advice. They had 3 investment properties which were situated in a Queensland mining town. When we met them, they had already sold the properties and there was a mortgage shortfall of approximately $785,000.

Options Available to Our Clients

Having discussed with our clients and understanding their individual circumstances, the options available to them were a combination of the following:

  • Putting a proposal to all creditors for a Personal Insolvency Agreement pursuant to Part X of the Bankruptcy Act 1966 to avoid bankruptcy;
  • Voluntarily file for bankruptcy or to allow the bank to make them bankrupts; and
  • Negotiating with the bank for a settlement of the shortfall debt.

In this instance, we advised the husband to file for bankruptcy, and the wife to negotiate a settlement with the bank. Our advice was based on the following reasons:

Successful Outcome

Based on our advice, the husband filed for bankruptcy in early 2019 and we commenced negotiations on behalf of the wife. By this time, the bank had already assigned the debt to a mortgage insurer. So, we provided an initial offer of $10,000 to settle the debt with the mortgage insurer. We knew that the offer would not be accepted (and had let our client know this). We also set out the wife’s financial position and advised that they will likely get nothing if the wife goes bankrupt.

As expected, the mortgage insurer rejected our offer.  The insurer made an offer of settlement for a sum of $195,000.  We then increased our client’s offer to $12,500 (knowing that wouldn’t be accepted) and the insurer rejected the offer, and again offered $195,000.

For about a year, the mortgage insurer kept contacting us to seek an increased offer – but we advised the wife could not increase the offer, given her financial position.

Then in March 2021, we were contacted by the mortgage insurer who made a final offer of $30,000.  We carried out further negotiations and a settlement was reached for $26,000.  Our client had no material assets but her husband was able to obtain this amount from his super fund (as superannuation is not accessible by a bankruptcy trustee).

Contact Us For Assistance

When faced with the prospects of not getting any returns when a borrower goes bankrupt, banks and mortgage insurers will often accept an offer lower than they usually would. It is simply throwing good money after bad to pay the cost of bankrupting a borrower with no assets when they can recoup some money immediately.

However, you will require an experienced professional to assess and present your situation to the banks for you. And of course, every situation is different from another and you may not achieve the same results. The example above took almost 2 years to reach a settlement and settlement negotiations can take a long time and a lot of patience.

So, if you have a mortgage debt you cannot pay (or any other type of debt), don’t hesitate to get in touch with us on 1300 906 966 or send us an email at mail@cactusconsulting.com.au.  We are happy to meet for a free confidential initial discussion or have this discussion by phone, Zoom or Microsoft Teams.

Posted on 01-07-21 in Bankruptcy Assistance, Personal Debt Solutions, Personal Debts.