Inter-family loan & property restriction

bhd

Hi people,

we have a situation here where a family member (Fred) wants to borrow 300,000 pounds from another (Vera), to use as a bridging loan in the purchase of a house. Once the existing house has been sold, the cash released will allow Fred to replay 200,000, and Vera will gift Fred the remaining 100,000.

Even though it's a family loan, all parties are keen to ensure that Vera's loan will be protected.

It has been suggested that Fred and Vera apply for a Land Registry restriction on Fred's current house, so that the house cannot be sold without Vera's consent.

However, as far as I can see, that is all that a restriction will do, i.e. require that Vera is notified, but it doesn't do anything to guarantee that when the house is sold, a particular part of its value goes straight to Vera.

So over to you guys - any ideas of how this could be achieved?

jonesMUFCforever

Vera takes out a second charge on Fred 's property to be sold.
Whether this covers of all of Vera's lending will depend on the equity in Fred's property.

bhd

jonesMUFCforever wrote: »

Vera takes out a second charge on Fred 's property to be sold.
Whether this covers of all of Vera's lending will depend on the equity in Fred's property.

The value of the loan will definitely be covered by the equity on the property (I should have made that clear in the first post), but what is this second charge? Is a charge the same thing as a LR restriction or some other mechanism?
TIA

pvt

bhd wrote: »

The value of the loan will definitely be covered by the equity on the property (I should have made that clear in the first post), but what is this second charge? Is a charge the same thing as a LR restriction or some other mechanism?
TIA

It's a mortgage. Assuming there is already a mortgage in place from a bank, it would become a second mortgage.

So Vera (lender) and Fred (borrower) draw up a mortgage deed and get it executed and registered by a pair of solicitors. Any decent solicitor will recommend that 2 independant solicitors act for Vera and Fred. Should cost about £500 to do.

There is then a "charge" on the house with the LR. Strictly speaking, a charge does not stop a sale, but the charge can only be removed by Vera, who has a right to force the sale if the terms of her mortgage deed are breached. No body will buy the house with Vera's charge on the LR, they would be mad too, so Vera's dosh is safe.

bhd

pvt wrote: »

It's a mortgage. Assuming there is already a mortgage in place from a bank, it would become a second mortgage.
<snip>
No body will buy the house with Vera's charge on the LR, they would be mad too, so Vera's dosh is safe.

Ah, thanks for the clarification.
We'd be wary of implementing anything which would make Fred's house less attractive to a buyer, and this might actually be less off-putting than a LR restriction (although I do realise that the restriction can be written to explicitly state its purpose, which should reassure buyers).

Any other ideas, people?

jonesMUFCforever

bhd wrote: »

Ah, thanks for the clarification.
We'd be wary of implementing anything which would make Fred's house less attractive to a buyer, and this might actually be less off-putting than a LR restriction (although I do realise that the restriction can be written to explicitly state its purpose, which should reassure buyers).

Any other ideas, people?

Are you for real?
This will not hinder the sale of the property one iota.
The only thing the solicitor will have to do extra is make sure after the mortgage company gets paid that Vera gets her money back before passing any surplus to Fred - transactions they do every working day!

pvt

bhd wrote: »

although I do realise that the restriction can be written to explicitly state its purpose, which should reassure buyers

What restriction?

I think you're alluding to having a covenant on the house that says Vera has to given permision for Fred to sell it. I don't believe that can be done with any effect.

As Jonesie's suggested, the clear, straightforward, and unambiguous way to deal with this is by a charge being registered by Vera.

A buyer will not see the LR entries, the buyer's solicitor will. And he will not be fazed by it, nor alarm his client (the buyer), exactly as Jonesie says.

Another advantage of the charge is that it also deals with the complications of what happens if Vera pops her clogs, or indeed if Fred does.

Go see a solicitor and ask for their advice on this. I am sure they will reassure you that Vera taking a charge on the gaff as Jonesie and I advise, is a straightforward and foolproof solution to your quandry.

pvt

bhd

jonesMUFCforever wrote: »

Are you for real?

Sadly yes

bhd

pvt wrote: »

What restriction?

I think you're alluding to having a covenant on the house that says Vera has to given permision for Fred to sell it. I don't believe that can be done with any effect.

I was indeed, the LR restriction that I mentioned in the first post. As I said back then, all that does is require that Vera be notified of the property's sale, and instruct the LR not to register the sale without her consent.

Thanks again for the clarification, the charge is the way to go.
bhd.