Dear Mr James Gordon
Please read the following and seek independent legal advice in its respect and feel free to pass this letter on to anyone you want.
To be clear how the interest is calculated by the banks when payments are stopped is that the unpaid interest is added on to the principal and the new interest on the following month is calculated on the new balance (principle plus unpaid interest) this causes a compounding effect on the principle which causes it to double very quickly. In simpler terms what it means is that in a very short period of time the principle doubles due to the compounding effect. The principle will keep doubling and doubling over time and this is very important to understand. In your case it seems that the principle is still below the agreed sales value of 43 which could paid off all outstanding debt and various fees (please confirm this with opus).
This is important to understand because non paid mortgages of 50K for example result in a astronomical amounts of 300 to 500K by the time the final bankruptcy proceedings sales trough receivers go ahead. The amounts are higher or lower depending on the time frame required by the bank to make it worthwhile for them to start bankruptcy proceedings.
The important point to understand is that the mortgages (secured loans) are secured on two entities
- The real estate
- and the person borrowing
So the banks have two ways to recoup the principle, interests on interests and many other fees
1 the sale of the relevant title
2 bankruptcy proceedings if the debt is not cleared by the sale of the title.
First they will attempt to sell the property to repay as much of the outstanding loan, interests and fees as possible. In lucky cases this is enough to clear the debt (new principle with interests on interests plus fees)
In case there is an outstanding amount to be cleared after the debt, then the debt will continue to accrue even after the sale but this time it is secured on the person. This means that after the sale the interests on interests will continue and the principle will continue to increase exponentially doubling a number of times. When the level of debt is high enough then the bank ultimately starts bankruptcy proceedings at which point all remaining properties will be sold by the receivers upon the bankruptcy order.
So even after the sale the loan will continue to accrue and the principle will double over tine until it is large enough to justify bankruptcy proceeding and the receivers will sell off the remaining par of any estate you may own including land , buildings , and any registered vehicle.
I told the receivers that the price allocated to the garage of 43K is not the real market value and the failed auction proves it. However rest assured that the mortgage the receivers will eventually lower the price of the land at auction, this is unavoidable over a long enough period of time. This is common place when the real estate cannot be sold at an acceptable value to the lender for long enough time periods. Therefore you can expect that on a long enough time frame the garage will be on the market for a guide price even below 5K, at these levels of reserve price the garage will sell. If the proceeds of the sale do not cover the outstanding debt the remainder of the debt will still accrue debt on debt meaning that the debt will double a number of times until it is worthwhile to the lender to initiate bankruptcy proceedings after which remaining properties can be sold to recover all the accrued debt many times higher than the original amount.
However we seem to be in a lucky spot because if we proceed with this sale then the purchase price assigned to the garage of 43K should cover the debt (ask opus for this figure).
Any remaining balance will be deposited into your account and you can access it after the situation with CPS is cleared. The
Advantages of selling now are:
clearing the debt
have the balance from the sale in your own account ready for later.
Hence peace of mind knowing that all the other properties are safer from future bankruptcy proceedings due to this defaulted mortgage.
If it is not sold now
1 The debt will never be covered by the sale of the garage which will be sold for a much lower price than the principle outstanding at the time of the sale.The bank will lower the price until the garage is sold on auction, this is inevitable.
2 even if you try to sell other buildings to cover the outstanding debt you will not be able to pay it off until the situation with the CPS is cleared ,hence any building sale would be fruitless and you may be left with the the debt accruing and the principle keep doubling again and aging until it will be worthwhile for the bank to start bankruptcy proceedings ultimately resulting in the sale of your remaining properties by he receivers. Therefore it seems that this sale it the best option to try and clear the debt. No other sale of other buildings or land can be used until bankruptcy to pay outstanding loans this can because it is done by the receivers.
3 bear in min that (because I received news from my solicitor that you intend not to sell) this week on Monday I had no option other than start working on other real estate opportunities and shortly the funds I have allocated to this purchase will be allocated to other purchases hence in the near future I will not be in the position to proceed with this purchase which could resolve this situation.
I invite you not to take my word for it but to seek independent legal advice on what the future holds if this loan is not paid in full. Again you do not need to take my word for it, you can speak to PRH or any other firm who specialises on these types of legal affairs.
Basically if you have loans and you own nothing the bank cannot take anything but if you own anything then the bank will eventually take everything though bankruptcy proceedings. Once again do not take my word for it ask for independent legal advice.
Therefor please bear in mind that this is a brief window of opportunity because although I am now working to reallocate the capital allocated to this transaction elsewhere the capital is this available for this transaction. The debt is mounting but it seems that the value of the sale allocate for the garage may repay the debt accrued plus fees (you need to ask your lender or opus for this information). So, while my funds have not been reallocated, I firmly believe that the wisest move you can make is simply sign the contracts as I have already done and the solicitors will do the rest. After that you can move on with much better peace of mind knowing that you will avoid all the dire consequences of this accruing secured debt which I tried to explain above.
Therefore I would recommend to take a short break to seek independent legal advice on the above, speak to opus, speak to friends and show this to your friends. You may understand how acting now is the very best option while my capital is not reallocated to another investment and the outstanding loan could be cleared with this transaction.
For Andreas Investments Ltd