I need some advice on my situation, which I feel is fairly uncommon.

A number of years ago, my family outgrew our 1 bedroom flat so we tried to sell it for a bigger property.

Because of market conditions, however, we were in a serious negative equity situation, and our building society was... unsympathetic, to say the least.

We then found our current lender, who was happy to give us a mortgage for a second, larger property (ironicly for less than our existing flat!) on the understanding that we could afford the total of both mortgages using their usual criteria, which at the time we could.

Unfortunately, circumstances have changed and we can no longer bear the financial burden of both properties. We have tried letting the former, but this has proved to be an ongoing nightmare of bad tenants and large repair bills, to the point where we can no longer cope. We have decided to hand the property back to the building society, before it becomes so rundown that it is no longer worth anything.

I then fully intend to repay at least some of the shortfall which will remain when our lender sells the property, hopefully in full and final settlement.

Our problem is this - while our current lender is fully aware of our situation, and was quite happy to lend to us in addition to our existing mortgage, our original lender has no knowledge of any of this.

Can anyone tell me what action, if any, our original lender could take should they become aware of the above? I assume we were not under any legal obligation at the time of the second mortgage to inform our existing lender, as I would have thought that our new lender would have instructed us to do that (which they did not).

To reiterate.. we are not trying to run away from this. We simply wish to relieve ourselves of this burden.

Can anyone help?

-- Craig Graham (craig_safc73@hotmail.com), February 25, 2002

Answers

Errr..yes you should have told your first Lender about the second mortgage. The [undisclosed] security for the second is undoubtedly the first....and now vice versa. So, handing the keys back is a really bad move I am afraid. You will have to sell the flat, and negotiate the loss with the BS, which will sidestep the nightmare that is repossession. The first Lender may slap a lien on the second property, but providing you repay the agreed amount to the first Lender, legally it will be inconsequential unless you default on the second mortgage too.

-- Too scared to say (iwasduped@yahoo.com), February 26, 2002.

Perhaps I have not made myself clear.

The second mortgage was NOT secured in any way on the first property, so I do not see how they can be linked in the way you say. I have 2 mortgages on 2 separate properties, the second of which was obtained with the Lender having full knowledge that I already had another mortgage, but not using the first property as security for a larger loan.

Surely the first lender cannot make any kind of claim on the second property, as it has nothing to do with them?

-- Craig (craig_safc73@hotmail.com), February 27, 2002.

If you have equity in your second property, then the first lender will be most definitely interested in this. If the first lender got a judgement against you for the shortfall on the first property, then they could, if they so desired, have a charging order put on your second property, as this is an asset. That would mean when you came to sell your second property, the second lender would get their money first, the first lender gets their money next and you get whatever's left.

-- pendle (pendle_666@yahoo.co.uk), February 27, 2002.

A far better explanation from Pendle, Craig. Unfortunately that's what they can do.Assets are assets, howsoever obtained, and unless that second property was carefully ringfenced ownership-wise from the outset, it's up for grabs. This is what I meant by undisclosed security; it's also why some major credit applications ask you what you own, be it cars or property.

-- Too scared to say (iwasduped@yahoo.com), February 27, 2002.

Thanks for the explanations, guys. From what you've said, would I be correct in saying the following about my original lender:-

a) They can't force me to sell my home (second property) b) They can't take me to court for neglecting to inform them c) If there is a shortfall, and I can make some kind of arrangement with them, that would be the end of the matter.

Or to put it more simply, can they put me in jail or leave my family homeless?

Sorry to be so melodramatic - my wife is absolutely terrified about what's going to happen, and I'm just trying to get some reassurance for her.

Thanks again.

-- Craig (craig_safc73@hotmail.com), February 27, 2002.

Hi Craig - in theory they [the first Lender] can get an Order for Sale on your second property but are *very* unlikely to do so...no they can't take you to court for not telling them, if you make an arrangement make sure it's a full and final settlement, under a legally binding agreement with ALL parties to the first mortgage. Tell your wife not to panic - you have simply to demonstrate the means and the willingness to settle with them and then it will all be over.

-- Too scared to say (iwasduped@yahoo.com), March 01, 2002.

Hi Craig - in theory they [the first Lender] can get an Order for Sale on your second property but are *very* unlikely to do so...no they can't take you to court for not telling them about the second mortgage; if you make an arrangement make sure it's a full and final settlement, under a legally binding agreement with ALL parties to the first mortgage. Tell your wife not to panic - you simply have to demonstrate the means and the willingness to settle with them and then it will all be over. If you get a total plonker at the Halifax, go straight to the top. Deal with the mechanics and not the oily rags. Best of luck.

-- Too scared to say (iwasduped@yahoo.com), March 01, 2002.

Hmm sorry chaps/chapesses. The first draft message seems to have posted too. Oops.

-- Too scared to say (iwasduped@yahoo.com), March 01, 2002.