DFD say I have to offer a secured loan or face the risk of defaulting.

[Andy.tw]

Thanks Michael for your response. Just to clarify, the quote I have given in my question is the modifiction from the chairmans report and this is also the clause that DFD have quoted to me as being the reason I have to offer the secured loan. From my reading of the original proposal and the modification, there is no mention of a minimum dividend and no other offer of equity.

The financial adviser that has provided the quote for the secured loan has explained the benifits of the secured loan over a remortgage and these are along the same lines as Michael explains. If a remortgage was offered but it was finacially better for me to take a secured loan, then I would consider taking this route.

But for me, the fact that this financial adviser is unwilling to offer me a single remortgage (and my modification requires two from reputable brokers) suggests that the 'financial market' feels that I should not be taking on further debt. I would therefore have hoped that DFD would have tried to work on my behalf (and not my creditors) when there is potentially this grey area. I would also question whether offering a secured loan at an APR of 20.5% (as suggested by the finacial adviser) to someone coming out of an IVA is indeed from a reputable broker.

[Foggy]

I am with Andy on this -- on the grounds that what was quoted is the latest version of the terms, which explicitly state that a 12 month extension will be imposed if there is a failure to re-mortgage.

Andy has been unable to remortgage, therefore under the terms agreed a 12 month extension should be imposed.

I see no ambiguity.

[nittykitty]

I thought an IVA was legally binding - on both sides! Or have i missed the point?! A re-mortgage is simply that.....

[sponge]

I’m normally skating on thing ice at the best of times but a remortgage is a first charge over the property, but they are asking for a secured loan, which in this case would be a second charge over the property and that’s not in the agreement? So I’m inclined to agree with foggy any civil contract law people out there?

[MelanieGiles]

I think that it goes without saying that when experts post on the forum about IVA proposals, it is an absolute given that this includes modifications contained within the chairman's report which are incorporated into the IVA contract at the time of its acceptance.

I accept Michael's points, but with the exception of HMRC - and less so I have to say these days - it is unlikely to see protocol based equity release provisions overridden by creditors.

[Michael Peoples]

This is going to be a bigger issue in the next twelve months or so. There are companies out there who are considering remortgage products for those in IVAs and I have been told one will be released by the summer. The rates will be 8-9% up to a maximum loan to value of 75% and this could mean clients having to take a total remortgage to complete their IVAs. Clients could lose valuable tracker deals whereas a small secured loan would protect them even if the rate is higher. Surely it is better to borrow £5,000 at 16% and retain your mortgage at 2.5% rather than switching the lot to 8%.

Posters here regularly complain that a secured loan is not a remortgage and a remortgage is what they agreed to when the IVA was proposed but once the remortgage products are available again I think some will see the benefits of a secured loan over a total remortgage. At the moment it seems people are assuming they will have a 6 year IVA but that may be a bit complacent.

[Adam Davies]

Hi

Andy.tw can you give some figures ? How much are you paying each month into the IVA and how much is the proposed secured loan payment ?

Michael makes a good point in that competitive current mortgages would be replaced by expensive remortgages with loaded interest rates so may be secured loans are the way forward ?

The problem is that you agreed to the IVA with the remortgage clause/12 month extension but did not agree to a possible secured loan, so you are right to be aggrieved

Regards

[MelanieGiles]

If this is the case, and I'd be glad to know more about these forthcoming products, then a secured loan could well be the cheaper option. In any case affordability will dictate the amount to be borrowed and at high interest rates the 12 month option could still be the better deal for creditors and debtor alike.

[Michael Peoples]

I agree Melanie and any product should not cost more than 50% of the IVA payment whether it is an remortgage or secured loan. This is what the debtor agreed to at the outset and it is what creditors expected when they accepted the IVA.

[UpToMyNeckInIt]

Please excuse the following diatribe, but bear with me…

Michael has raised some very good points about mortgage products that may be available to IVA-ers in the near future. Had a feeling this would happen sometime soon – great money spinner for the banks eh?

Also, some IP’s cream off 15% of any additional realisations, so I wouldn’t expect much help from them in arguing your case for going for a 12-month extension instead (don’t know if that’s the case here however).

There will be scenarios where a mortgage will be more costly than a secured loan and vice-versa. Both however, are far more costly than extending IVA payments for another 12 Months.

Granted, if we were considering a scenario where a customer had been offered a sub-prime remortgage, and the IP suggests a loan instead that works out cheaper – great!!! However in this case, the issue now seems to be an IP requireing their IVA customer to take out a secured loan (in breach of the contract terms IMO), rather than offering a choice to do so. The customer, as per their contract, feels that the IVA should instead end/be extended for 12 Months – and rightly so.

Breach of Contract is a well-established legal principle. The terms and conditions of ones IVA are clearly defined in black & white.

On that basis, if you take the OP’s perspective verbatim, I believe their IP is acting unprofessionally in this matter. If it were me, I would be well on the way to making a formal complaint, to the IP's accrediting body, the FSA, DEMSA and the OFT. (Also possibly seeking out legal advice with a view to pursuing a legal action against the IP).

For the price of a few stamps, and a little time, I reckon a few well-constructed letters are all it would take to get the IP to drop it.

However, I suppose the balancing argument to all this, is that the resulting additional monthly payment is capped at 50% of your current IVA monthly payment, making it 'affordable' - despite the high 'credit Card' interest rates that may apply to the secured loan.

Very concerning indeed: If I wanted to enter an agreement with my creditors where the goalposts can be shifted, and it would take 15-20 Years to pay off my debt, I'd have gone for a DMP!!!

Those companies already eyeing up the 'mis-sold IVA' claims market, are going to be busy in a few years me thinks.

Just my take on things.

[Adam Davies]

Hi

I guess the argument is can it be right that creditors write off a large chunk of debt and leave the debtor with a large equity stake ? If equity can be released at a cost of no more than 50% of the current IVA payment the debtor is not really any worse off than had they actually been able to remortgage and pay the same amount. Most people with the choice of equity release or a 12 month extension would choose the latter but it is not a choice for the debtor, it is the default setting if equity can't be released.

It will come down to communication and expectations at the start of the IVA and id secured loans are going to replace remortgages[which are near impossible for anyone in an IVA] then the debtor needs to be fully informed of this from the outset

An interesting topic

Regard

[UpToMyNeckInIt]

Hi Andy,

I understand that side of the argument, particularly relating to the affordability.

But, the customer has to 'afford' that loan for another 10-15 Years in some cases at stupid%APR. To add insult to injury, some have to pay an 'arrangement fee' for the privilege.

Is that fair? (I don't think so).

As for it whether or not it is 'right' for creditors to write off debt, leaving large equity. Well, I suggest that this is what the creditors agreed to when the IVA was proposed, and is specifically based upon a customer's ability to 'remortgage' within contracted parameters.

It is what is in the IVA contract that matters, whether or not it is right, fair or otherwise is beside the point.

It is an interesting topic, and one which we shall see more of I suspect.

Incidentally, DFD have been conspicuous by their absence in this debate.

Please: DFD, are we missing something here? - We know you cannot comment on individual cases, but let's hear your side of the argument to get this into perspective.

[Foggy]

The discussion is drifting off into "what ifs" and "maybes". The point here is that the OP's proposal ( contract, if you like) states explicity that failure to re-mortgage will result in a 12 month extension.

If, in future proposals they alter the wording to include any and all funding sources then those entering an IVA on those terms will have this discussed in advance.

Back to this particular thread, we are expected to obey the letter of our IVA's, so should the IP ... end of.

[Course]

I totally agree with Foggy , its really not that complicated ,the contract states Remortgage and failure will result in 12 month Extension , clear as day , whats the argument?

His IVA company are undoubtedly trying it on and Im 99% sure they will be better off if he took the loan rather then the 12 month extension otherwise why would they push for something that Im guessing the creditors know nothing about? and something that 99% of IP's do not agree with.

Some have mentioned the fact he may have alot of equity and is it fair to just pay 12 months !! hang on thats what we signed up for, if the creditors werent happy they wouldnt have voted 75% in favour of the IVA agrrement, if there happy with 12 month extension then so should your IP be happy and trying to get you debt free not carry your debt into the grave ...

[Niobe]

I'm not with DFD and have way more equity than is needed to pay my creditors in full but my company are happy to take the extra twelve months with no mention of a secured loan.

I'm more than happy to go with this.