SuccesHow_We_Helped_Settle_a_Mortgage_Shortfall_Debt

We have previously written here and here about what you can do if your property is worth less than the debt you owe to the bank. That is, your property has a negative equity.

If you sell or are forced to sell a property with negative equity, you will end up with a mortgage shortfall – where the sale price of the property is not enough to cover the mortgage. The mortgage shortfall debt can be assigned to a mortgage insurer if a mortgage insurance was paid for when the mortgage was taken out.

We recently helped another family settle their mortgage shortfall debt with the mortgage insurer. This is how.

Background – Property Price Crash

Our client invested in a property in one of the ‘mining towns’ north of Brisbane. Their plan was to rent the property out and pay their mortgage with the rental payments received. It was initially successful but property prices in the area crashed in 2018. As a result, rental prices dropped and the rent our clients received could no longer cover their mortgage repayments.

Our clients contacted us to find out whether we could help them. An initial meeting was held and we established the following:

  • Only the husband was employed and his wife was a stay at home mother;
  • They had two children below 6 and another child was on the way; and
  • Apart from a car with negative equity, our clients had no other significant assets.

Options Available to Our Clients

Having considered our clients’ circumstances, we advised them that the options available were:

  • Voluntarily file for bankruptcy, or to allow the lender to make them bankrupt; or
  • Sell the property and thereafter negotiate a settlement with the lender for the mortgage shortfall to avoid bankruptcy.

Successful Outcome – Settlement of Mortgage Shortfall Debt

Taking our advice, our clients decided to sell the property. We first approached the lender and the mortgage shortfall insurer to inform them of our client’s financial situation and their decision to sell the property. We kept the lender informed throughout the sale process and assisted our clients along the way. The property was sold and there was a mortgage shortfall of more than $230,000.

We then commenced negotiations with the mortgage shortfall insurer since the mortgage shortfall was assigned to them after they paid the shortfall amount to the lender. After several rounds of negotiation, the mortgage shortfall insurer agreed to a settlement of sum $25,000 in full satisfaction of their mortgage shortfall debt. Our clients were able to borrow this amount from a family member as they had limited funds available to them.

The amount ultimately paid by our clients to settle the mortgage shortfall debt was about 10% of the debt they owed. This was a great outcome for them and they avoided bankruptcy.

Contact us for Assistance

It is important that you obtain professional advice and assistance if you have or think you will have a mortgage shortfall debt.

So, don’t delay things any further and get in touch with us on 1300 906 966 or send us an email at mail@cactusconsulting.com.au to arrange a free confidential initial discussion.

Posted on 09-03-21 in Personal Debt Solutions, Personal Debts.