Bought-out and broke: Red-stickered flooded Aucklanders facing ‘financial ruin’

Sunday, 21 July 2024

Bought-out West Auckland homeowners in negative equity face hundred of thousands of dollars of debt. Auckland Council says changing the scheme would require more consultation - which the local MP calls ‘absolute bullshit’. Amelia Wade reports.

The couple in their fifties think they’ve lost about $370,000 because of the council’s buyout offer on their inhabitable home.

If only they were 10 years younger, the wife wishes - that would give them more time to recover. By the time they’ll be able to save for another deposit, she doubts any bank will be prepared to give them a loan because they won’t have enough working years left to pay it off.

“We had everything - a place to settle, to live - all gone, vanished,” she said.

It wasn’t the floods in last year’s Auckland Anniversary storm that forced them out of their Scenic Drive home, but a slip that came crashing into their neighbour’s property and moved the land so much the council decided their property posed “an intolerable risk to life”.

The couple didn’t want to be identified because of their work. They had recently immigrated to New Zealand and found the home they wanted to spend the rest of their lives in. They got 10 months.

All their savings were poured into a deposit and after allaying the banks’ concerns about their diminishing earning years, they bought their house for $1.45 million in 2021 - at the top of the market. House prices have fallen since then.

The valuations for category three buy-outs have been set by Auckland Council at January 26, 2023 - the day before the historical and devastating deluge.

The couple thinks the payout will just cover their mortgage, but it will wipe all their equity, leaving them back at square one as they approach retirement age.

“The council calls it a voluntary buy-out but it’s not really voluntary because we don’t have any choice,” the wife said.

Are you bought out and in negative equity? Email amelia.wade@stuff.co.nz.

“It was like they looked at us only as a number, not a human in this situation.”

The couple is one of three red-stickered homeowners who have spoken to the Sunday Star-Times about the council’s buyout process, saying they are facing financial ruin.

The Star-Times can reveal Auckland Council now believes it will have to purchase about 900 properties - about 200 more than it previously believed - at a cost of about $900m which is being bankrolled in a 50/50 deal between the council and the Government.

If a property has been assessed by council as an “intolerable risk to life” the homes are red-stickered. After insurance payouts, the offer is topped up by the scheme to 95% of the valuation. The other 5% is written off by the homeowners as a “contribution”.

The council said the aim of the policy was to allow affected Aucklanders to move on from homes that posed a threat to lives.

But the homeowners say they feel backed into a corner because they have no choice but to accept the buy-out offer. If they don’t take the deal, their homes are uninsurable so banks could recall the loans, leaving the homeowners in negative equity facing bankruptcy.

They’re left unable to live in their home, unable to sell it; they can’t move on and buy a new one.

One man in his 30s told the Star-Times he felt trapped because he’s looking at a possible $200,000 loss, and called the offer a Hobson’s choice.

“It’s a voluntary buy-out in name only. We’re kind of forced to take that option because you’d be an idiot not to.”

The first home buyer didn’t want to be identified because he and his partner haven’t even told their close friends because they felt the situation of being in financial ruin was “shameful”.

Alex Young has previously spoken about the issue after calculating he will end up owing the bank $100,000 and without a deposit for a new home.

“Option number one is to sell to the council and walk away with approximately $100,000 in debt, bankrupt by council,” he told Stuff last month.

“Option two is not to sell to the council but then that means I’m going to lose insurance cover.”

Auckland Council’s group recovery manager Mace Ward said while he sympathised with the homeowners, the buyout scheme was designed to not interfere with the market and specifically doesn’t include considerations of financial hardship.

“It’s not the intent for councils to be, or the Government to be, the insurers of last resort.”

However, the scheme does include provisions for property owners who didn’t have insurance.

Those property homeowners are offered at least 80% of the value of the property but some in extraordinary circumstances - i.e. that they couldn’t get insurance because they were still doing repair work from previous flooding - are eligible for the 95% offer.

Of the 209 properties that have settled so far, eight did not have insurance.

On average, the ratepayer and taxpayer contribution to the buyouts has been 77%, 5-20% has come from homeowners and the rest paid by insurers or the Earthquake Commission.

“I think people [in negative equity] would be a lot worse off if they weren’t getting that 77% on average payout from Aucklanders and that burden on the ratepayers,” said Ward.

Ward said about 12,000 homes were affected by the flooding - 9,000 of which weren’t getting any direct support from the buyout scheme. Some category two properties were eligible for grants to make repairs.

If the funding agreement were to be changed to include special consideration for those facing financial ruin, there would need to be another round of public consultation.

“That’s absolute bullshit,” said Te Atatū MP Phil Twyford, who has been lobbying the council and central government for his constituents.

“It’s council policy … I don’t think any Aucklanders would expect a fully-blown consultation process.”

Arguably the council would need to consult the Government which is financing half of the buy-out scheme, said Twyford.

“But I don’t think for a minute if they went to the minister that he would object to them finding a way for a small group of homeowners to participate in this scheme without facing financial ruin.”

Cyclone Recovery Minister Mark Mitchell washed his hands of the issue and referred affected homeowners back to the council.

Spokesperson for the community group West Auckland is Flooding, Lyall Carter, said the council had an obligation to these homeowners - especially in areas where the flooding was severe because waterways and culverts hadn’t been maintained.

He wanted the council and councillors to change the policy settings so negative equity could be considered a special circumstance on a case-by-case basis.

“The council has the power in their hands.”

The buyout scheme was intended to make families safe, but forcing them into a financial crisis did not do that, said Carter.

“It’s not just floods that are a risk to our people, absolute and complete financial ruin is just as much a risk to life as storms and floods.”

Auckland Council urged anyone facing negative equity to talk to their banks. The Bankers’ Association has said banks have dedicated hardship teams to talk through options.

But the couple in their 50s facing a $370,000 loss say they’ve been unsuccessful getting their debts lessened via their bank.

“They are worse than the council.”

What do you think? Email sundayletters@stuff.co.nz. Please include your full name and address.