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Debt write for your commercial or business mortgage debt

Can you really shave thousands off of your mortgage debt? Mortgage Hair Cut is commonly used (or rather mis-used) name to describe Debt  Forgiveness

Why it Happens

The value of assets has declined by 40% in most areas and by as much as 90% of we are talking about development land.

If a bank has a loan outstanding of say £2 million to a particular property developer and the value of the assets today is deemed to be £1million then the most the bank is ever going to recover (assuming the developer does not independent wealth) is £1 million.  The only way the bank can recover this money is to appoint an LPA receiver who charges fees.  The disposal of the asset (often through an auction house) is a costly process and the bank may not realise any of this money for a year or two and the actual monies they receive will be a LOT less than a million perhaps closer to half a million.

Our process is to appoint an independent surveyor and approach the bank and explain that we believe the value of these assets is £1million.  If we can raise £1million and pay you within 45 days you will have more money, more quickly than you will receive than working in your standard model.

It’s the banks interest to work in this way as they can leverage that £1million and lend it out 8 times and make back the loss than if they are waiting for 2 years to see any of the money.

I really don’t like the term “mortgage haircut” as it implies we are ripping off the bank when what we are going in presenting them with the reality that the value of assets has declined and finding a win:win solution for both parties.  The investor retains the property and the bank is able to minimize losses and get their money back as promptly as possible.

There have been a number of instances where portfolio lending has been recalled due to fall property values and a reduction in equity has led to the banks recalling the loans and the portfolio being disposed of.

Why this happens?

Any bank that is using the loan to value covenants as an excuse to put pressure on borrowers, well that really is a smokescreen.  It’s all about raising cash, the banks need to raise their capital base under EU regulations and they are using this as an excuse to get their capital back.  We have clients that have never missed a payment in their life but banks are recalling funds as they state the client has exceeded their 50% loan to value and are using this an an exuse to victimise the borrower.

The large banks are very centralized organizations MD sitting in Edinburgh says go and get in as much money as possible and the good, the bad and the ugly all get swept up together.  Very good clients are being victimized by the banks as they have to hit their own internal targets.  Customers ARE NOT judged on their individual targets but if a client with large borrowings is deemed to be an easy target the bank will attempt to force them to get the money repaid.  In any war the innocent get slaughtered as well as the enemy and at the moment we are in a situation where banks are fighting for their own survival, any belief that they exist for the customers benefit is purely a fallacy.

It can defy logic to those who are looking at this from the outside wondering why a landlord who has  great cash-flowing portfolio and an exemplary payment history is giving their loan re-called if  you don’t understand that this has nothing to do with the individual borrower and everything to do with the banks centralised policy.

Who is eligible for debt forgiveness?

Clients tend to find me via word of mouth but it ALWAYS comes about as the bank starts to put pressure on the client.  I don’t think there are any cases where the approach has been made by the investor first, they are ALWAYS being pressurised by the bank and we are able to structure a win:win deal as the bank wants their money back.

Let’s consider a real life scenario.  The National Australia Bank are the owners of Clydesdale and Yorkshire Bank and they have made it abundantly clear that they want out of the UK market at almost any cost and are calling in the loans from almost every property client.  We know this is a situation where the bank is not going to restructure the debt or extend the loan as the bank has already made it clear they want out of the market.  The bank puts pressure on the client to repay the loan, the client approaches us and we begin discussions with the bank explaining that the disposal value of the portfolio is not £10m or £12, its £6m, so are the prepared to accept the consequences?

With the so called buy to lenders of Northern Rock and Mortgage Express who are now nationalised and part of UK Investments they simply have a mandate to run down the loan book for the next 10  years using whatever tricks they can to get in as much capital as possible.  These operate more akin to The Ministry of Silly Walks than an actual Bank!!

However if anybody is listening to this and they know they have £1M of debt and only £500,000 in assets providing their loans are not with UK FI (nationalised banks previously mentioned) there is potentially something we could do.  If they have £1million of debt and £2million in assets there is no point talking to us.  We are here to help people who are victims of the recession not to help chancers who just want to write off half of their debt with no real justification for doing so.

What if you no longer wish to retain the properties?

Naïve investors sometimes think that if they no longer wish to retain their properties and are under pressure from the bank to repay the loan often believe they can simply “hand back the keys” to their properties and walk away from the problem.  They are often forgetting about the personal guarantees they put in place when they agreed the terms of the loan back in the halcyon days of the property boom.  I illustrated earlier that a loan of £2million may well only ever realise £500,000 for the bank after disposal.  If PG’s (personal guarantees) were in place then the bank will be pursuing the client for the balance of the difference.  We DO work with investors who are looking to exit their portfolios and seek a full and final settlement with their lender so these personal guarantees do not come back to bite them.

Some of our past successes have been:

1    Property development company

Properties placed into hands of LPA receivers prior to our involvement.

Properties sold leaving a mortgage shortfall of approx. £7.5m

Against our advice, client attempted to sue the bank

Case lost with costs of £230k awarded against our client

Client had no funds to meet even half the legal costs.


Bank agreed “drop-hands” deal:

£7.5m shortfall written-off

Client paid just £15,000 (in 3 instalments) towards legal costs in Full and Final settlement


2    Property development company - complex inter-company guarantees/debentures:

Bank secured debt approx. £4.7m

Company struggling to pay mortgages and properties in negative equity


Bank agreed write-down to £2.3m

Total write-off = £2.4m

New lender sourced for re-finance

Company debentures agreed to be waived by new lender on re-finance

Potential IRSA claims ongoing


3    Landlord -several residential/commercial properties:

Bank owed £4.9m 

Company struggling to pay mortgages and properties in negative equity


Bank agreed write-down to £3.35m

Total write-off = £1.55m

New lender sourced for re-finance


4    Personal Client:

Personal Guarantees to Bank of £630k


Debt reduced to £95k

Payable over 10 years

All interest frozen


5.   Landlord -several residential/commercial properties:


Owed Bank  £4.9m

Company struggling to pay mortgages and properties in negative equity


Bank agreed write-down to £3.35m

Total write-off = £1.55m

New lender sourced for re-finance

Referred IRSA claim to our preferred solicitors – initial direct redress agreed at over £140,000

Potential further consequential loss claim yet to be quantified.


Personal Client - secured debts on personal home – in severe negative equity


Client in very poor health

Personal Guarantees from failed company

Total debts to bank approx £2m

Unsecured debts in excess of £200k


Bank recovery action stopped

Postponed client’s personal bankruptcy/IVA (and potential loss of marital home to Bank)

Referred IRSA claim to our preferred solicitors – initial direct redress agreed at over £370k

Potential further consequential loss claim yet to be quantified

Remaining IRSA monies for possible IVA to prevent bankruptcy (and to provide funds to purchase a new home for client and his wife) – still ongoing

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