Landlord Debt Advisory: Case Settlement Process

Following on from my previous post where I introduced CD Fairfield Capital as a company and our property debt resolutions brands, my next posts are case studies, real-life client situations we have dealt with and resolved.

Our Professional Landlord client approached us via our www.landlorddebtadvisory.com website for advice. For the sake of anonymity, we shall call him Bob. Bob had overextended his borrowing,  purchasing 35 properties since 2004, refinancing several times to raise deposit funds for further purchases and so on. The challenges he was facing were:

  • Interest rate rises (2x 0.25% Bank of England rate rises since we initially took instruction – all mortgages on variable rates
  • The financial impact of Section 24 taxation;
  • Bob’s age, 53 – all mortgages were interest-only with varying expiry dates (2019 – 2031); there were no repayment vehicles in place
  • Miscellaneous costs such as rental void periods, repairs and maintenance, management fees and charges

The Financials;

Portfolio Value:                                                                        £5.12m

Outstanding Debt:                                                                  £5.93m

Expected Shortfall/Negative Equity:                           £810,000

Total Debt Written Off:                                                        £696,000

Total Settlement:                                                                      £114,000

There was a combination of properties with equity and those in significant negative equity.

Bob told us the catalyst for contacting us was a combination of unplanned repair bills and the realisation that any further interest rate rises deemed the portfolio unprofitable as his cash-flow position was already precarious (up until that point it had always made a profit, albeit a rather modest one).

There was also a serious concern for the family home. This property is also mortgaged, owned jointly with Bob’s wife and has significant equity.

Once instructed, we completed a detailed review to include:

  • Recalling all lender documentation (15 lenders) to review security
  • Completing a detailed Statement of Affairs and reviewing all relevant client documentation
  • Portfolio Valuation – 35 individual reports

After concluding this work the following was clear:

  • As Bob had suspected the portfolio was untenable; despite there being some cash available, any combination of the challenges highlighted would quickly absorb this reserve.
  • Some lenders had the right to consolidate against the equity in other properties if sold.
  • This venture would become loss-making Q4 2018 or Q1 2019, and significantly so.

The recommendation was made that all properties were to be sold with the exception of the family home (this is not always the case). The Move With Us network was appointed to address the asset management element of the case (various agents and locations through England and Wales) to commence in line with each lender’s specification.

As the majority of the properties were tenanted, management contract extensions were agreed (where applicable) to ensure consistency with incoming rent, and the properties marketed.

While marketing was ongoing, we provided all lender representation for Bob. Further to this a bespoke shortfall settlement package was offered and accepted on a pari passu basis amongst the lenders (in this case an IVA); the highlights being:

  • Bob retained his family home; we negotiated new terms with his existing lender on a full repayment basis (had previously been interest-only)
  • Bob avoided bankruptcy
  • The equity from the properties sold above the loan value formed part of the settlement (£74,000)
  • Bob also added £40,000 – a combination of his own savings and gifted funds from family to this sum ie total settlement paid £114,000, total debt written off £696,000
  • Our total fee for this work was £37,500 (typical fee for addressing a single property and settlement is £4,000; average shortfall debt write-off is £70,000+)
  • The timeframe from instruction to conclusion circa 18 months

The above case type is common. We receive dozens of enquiries per week from Landlords with similar circumstances and varying portfolio sizes, geographical locations and levels of equity. It’s often the case that the Landlord has already spoken to the lender(s), the Accountant, a Financial Adviser, Solicitor and/or an Insolvency Practitioner unfamiliar with the intricacies of individual lender shortfall policy.

We are the ONLY company of our type in the UK with the expertise, regulation, lender relationships and track record to complete complex, multi-faceted cases of this type in a commercial and client-focused manner.

Are you in Negative Equity? We can help!

There is a considerable amount of misinformation surrounding property debt and negative equity. The aim of this and subsequent articles is to provide an overview of how we have been assisting homeowners and landlords with property debt issues since 2012.

CD Fairfield was formed by Philip Davison (MD), and myself as a reaction to the fallout from the unprecedented property crash in Northern Ireland in 2008. At the time it was estimated that approximately 60,000 properties had mortgages greater than their value. The Council of Mortgage Lenders estimated the negative equity total to be circa £2.5billion.

Of course, this isn’t an issue for everyone in negative equity, but for those who need to sell for financial reasons or otherwise, many found themselves in a “bad debt” situation for the first time in their lives, and through no fault of their own.

The “party line” from Lenders and Government Agencies was to speak to your lender. I can tell you from significant experience that in many cases that is the last thing a borrower should ever do!

It was clear that a bespoke mediation service was required to take borrowers by the hand to not only guide them through this minefield but provide full representation, an end-to-end solution.

As well an being authorised and regulated by the Financial Conduct Authority we have an in-house Insolvency Practitioner, Edward Walsh, a member of the Chartered Accountants of Ireland and R3 (The Association of Business Recovery Professionals). We also have Senior Management who holds membership of the Insolvency Practitioners’ Association.

With these associations and levels of regulation, we have the full suite of debt solutions under one roof which includes:

  • Mortgage re-negotiations (with the existing lender)
  • Mortgage Mis-selling Claims
  • Informal/Negotiated Settlements
  • IVA (Individual Voluntary Arrangement)
  • Bankruptcy

We also recognised that there were a number of distinct differences based on whether we were helping homeowners or Landlords in Northern Ireland or in mainland UK. This being the case variations in brand were created as follows:

Negative Equity UK

Negative Equity NI

Landlord Debt Advisory

Get Help With Debt

What sort of results does Negative Equity UK achieve? This is a snapshot of some settled cases: Settled Cases

Our independent Client Review show an approval rating of 4.89/5.00

Securing successful outcomes for clients is front and centre in all that we do. How do we do this?

  • Developing and maintaining excellent working relationships with lenders
  • Recruiting highly competent staff from the legal, accountancy, insolvency, banking and financial services sectors
  • Continual investment in systems and people
  • We listen to our clients and implement constant improvement based on feedback

 

(up to April 2018)

In my next articles I’ll provide specifics; the mechanics of a case, the process that followed and the outcome for the clients.