Charge on Property

cococoladebt

Hello.

I am asking this question on behalf of a friend.

Someone owes him money and my friend has put a charge on the property. Now this person is willing to sell the property to my friend.

Can my friend go to the bank and say I want a loan but the equity required is already in the property. Would it be possible to obtain a mortgage this way?

cococoladebt

Just bumping this thread up.

G_M

I imagine it will involve persuading the lender, but I see no objection.

Presumable the property is worth, let's say, £150K.
And owner owes your friend, say, £50K
And your friend will apply for a mortgage of £100K

The owner will sell the property for £150K, but on Completion your friend will give the owner's solicitor the £100K (received from the mortgage lender).
The Charge will then be removed from the property.

It would not be a 'standard' transaction, but there is no reason the solicitors involved (and lender) could not sort this out.

edit: the above assumes the current owner does not also have a mortgage on the property. If he does, the £100K he receives would also have to be sufficient to pay off his mortgage.

cococoladebt

Thanks that seems quite reasonable. I will pass this on.

kingstreet

As a charge over the property does not constitute an equity share, the answer to this question is no, IMHO.

That would make the transaction a vendor gifted deposit, rather than a simple equity purchase and would leave no lenders willing to lend.

If there was a family relationship between the parties, a purchase at undervalue might have been a solution, but there's no indication this is the case.

If there is no mortgage on the property, the charge holder could become a part-owner, making the purchase of the other party's equity fairly straightforward. This becomes more difficult if there's a mortgage already.

DVardysShadow

kingstreet wrote: »

.... That would make the transaction a vendor gifted deposit, rather than a simple equity purchase and would leave no lenders willing to lend.

The 'gift' would be the buyer's own money on this analysis. I don't see this as a vendor gifted deposit. The big difficulty as we see is getting the professionals to analyse it correctly.

G_M

kingstreet wrote: »

That would make the transaction a vendor gifted deposit, rather than a simple equity purchase and would leave no lenders willing to lend.

.

Not sure I understand.

The seller owes the buyer £50K (using my example figures above). So the £50K is the buyer's money - not a 'gift'.

Provided the sale price was a true market value (as valued of course by the mortgage lender's surveyor) there is no 'gift' involved.

Just some tricky legal/financial footwork getting the right amount to the right person on Completion, and the Charge removed. Though even the Charge isn't an issue, since it is in the buyer's name so he can remove it at his leisure at any time.

But I may be wrong of course....

kingstreet

OP please let us know what happens with this. I'm curious about the outcome.

cococoladebt

No movement on this front. I will let you know if something happens.