Death In Family- What Happens in This Case?

[bready]

Hi all,

The recent death of my wife's sister has lead to some major concerns for us for the future of her surviving partner and young child.
I have strongly suggested taking the advice of the engaged solicitor for the following question but I am hoping to get some people's thoughts beforehand to at least know what the likely outcome may be.
The couple had their investment property and their PPOR on the one loan in both names. (When they applied for the loan they stated the PPOR was also an investment property so rental income could be taken into account for servicing the loan). Her partner cannot now service the full loan of around $400k on his self employed income and the small amount of super that has been left to him. He has a buyer for the IP paying around $230k.
The question is this: is there a common procedure for how the existing loan will be treated? The wish is to give the lender only what they need to keep the loan going for the PPOR (purchased for $269k now maybe worth $320k) and dropping the repayments. This is where I see a stumbling block. He is under contract to pay a certain amount each month and therefore would have to refinance to change the contracted repayment I also suspect the contract will have to be changed (requiring the need to refinance) as both names are involved. If he needs to refinance, unfortunately he is in trouble as his income is not anywhere near sufficient to service a loan of around $200k to keep his PPOR. He earns good money but the final figure isn't good after his tax claim.
Has anyone had any experience with what is a very complex matter like this or has any knowledge to indicate what the most likely outcome will be? The partner would dearly love like to keep the property as they both worked very hard to obtain it.
Any thoughts will be greatly appreciated.

Thank you

Bready

 

[bundy1964]

Hi
The contract may be made out in joint names with a severaly clause? ( I think I said that right ) meaning it transfers over to the individual meaning no need to refinance.

If he can meet the payments asuming no refinance is needed there is no problem. If there is a problem he may have to tell the truth to the lender.......they may find a work around.

bundy

 

[asy]

Bready,


Firstly, I am sorry to hear about your loss...

Secondly, you are right, a solicitor needs to be consulted as soon as possible.

Now for my non-solicitor's view on things.

Would you please ask your "brother in law" whether the titles were held in "Tenants in common" or as "Joint proprietors"?

If the titles were held as Tenants in common, then the portion of the title owned by the decedent will be disposed of according to their will. For example, if your Sister in law had a will leaving everything to her mother then her share of the property would automatically transfer according to the provisions in the will. If she died intestate (without a will) her partner will need to petition for her portion, but it will likely go to their child according to the laws of intestacy.


Most people, when buying property with their partner will have that property held as Joint proprietors, this means that if one of them dies, the surviving partner will automatically inherit their portion of the title, irrespective of any will (and in the absence of any will).

With respect to any mortgages, if they were taken out in both names, the bank will have held them as jointly and severally liable. What this means is that they are both liable and each unto themselves liable. So in this case, with the death of one party to the loan, the other party becomes solely liable.

I have three suggestions with regard to the loans (other than sell the property).

Firstly, as Bundy said, go to the bank and ask them if they are able to help.

Secondly, See a good broker to see whether there is any way to refinance the loans (although this is probably a long shot, given what you have said about his income), to pay interest only for a few years to get his feet back on the ground and give him some breathing room.

Thirdly, and this will probably not be a popular idea, but maybe he can move out of the property and tenant it. This will probably pay the mortgage, at the same time, he should move to a rented house which is cheaper than he is currently paying. If he has sole responsibility for their child, in all likelyhood he will be eligible for a sole parent benifit (has he already looked into this???) AND he will be eligible for rent assistance.

I am serious, he will be eligible for rent assistance, but it will reduce proportionally to the amount his properties are negatively geared. You are not reading this incorrectly!! You can positively gear property and not have that impact on your rent assistance, but if you negatively gear they will penalise you for it.. weird but true.

Please don't hesitate to ask for clarification on any of this you require, but remember, I am not a solicitor, don't rely on my advice.

anyway, a little long winded, but I hope it helps.


asy

 

[bready]

Thank you very much Asy,

Your reply was not long winded; I appreciate your thoughts and detail.

Your third suggestion makes a lot of sense (as do the others of course) if worse comes to worse. That is a brilliant idea.

I am reasonably sure they were "Tenants in Common" and there was no will involved unfortunately. My wife and I are making sure our will is current and up to date after seeing the complexities of what can happen without one. I cannot stress strongly enough to anyone how vitally important it is to have a will in place in the event of the unthinkable.

Once again, thank you.

Bready

 

[Les]

G'day Bready,

Just thought I'd throw in a few ideas to consider. Note that the detail given leads me to a few assumptions (which could be quite wrong).

First off - gotta agree with Asy - your friend needs a good solicitor, and (perhaps) a good broker.

Second, not much data on the IP - if $230k is a good price, then this would leave $170k as a mortgage against a $320k PPOR - even a no-doc loan is an option here. (Yes, I know these would be a higher Interest rate, but consider this - the PPOR, if currently P&I, would be chewing up nearly 20% more than IO - so, if current Interest is 6.5%, even "no-doc" IO at 7.5% is cheaper!! but not by much...) And, if the IP were sold, how much would this release to either a. pay down the PPOR or b. offset against the mortgage?

Note:- One thing learnt from playing "Cashflow" was that one can buy A LOT of time by keeping "windfall" money to assist monthly payments, rather than "paying down a mortgage".... So, how about that Offset account??????

Third - what's the chance of "taking on a boarder" to subsidise the payments - share accom does NOT have to include "meals provided" - and can put another $100 - $150 into the kitty.

Fourth - is your friend wanting to KEEP the IP as well? Would he be willing to move out and rent the PPOR (for a time) to save both? (And rent cheaper, as I think someone else already suggested...)

But, back to the major point - do get advice to check out the possibilities.

And do keep us all in touch, too, won't you - would appreciate hearing how it goes.....

Regards,

 

[bready]

Hello again,

Thank you all for your very helpful responses. As it is turning out, all that will be needed is to bring the balance of the loan to 80% of the property value and life can go on.

Unless matters change for one reason or another, it will thankfully be a simple outcome.

Thanks again,

Bready