How is a mortgage discharged on sale when there's a deed of trust?

Thrugelmir

grifferz wrote: »

She considers it a fair exchange for a home; it will also result in her no longer having to contribute anything towards rent, and it is of course still a long term investment. That could go down in value, we realise!

Over the time the mortgage balance will reduce. So the fluctuating property value is really of no consequence. In the early years you are the one with the risk of having nothing to show for your payments.

You should protect your "deposit share" to take account of the fees you are paying at the outset. As legal fees and stamp duty will amount to a few thousand pounds.

ValHaller

On the question of independent advice see https://forums.moneysavingexpert.com/discussion/4545871

This is a situation roughly similar to yours where the conveyancing solicitor appeared to correctly recognise the conflicts of interest inherent in a Trust Deed and seemed to start taking the financially more vulnerable partner as teh client.

grifferz

ValHaller wrote: »

the conveyancing solicitor appeared to correctly recognise the conflicts of interest inherent in a Trust Deed and seemed to start taking the financially more vulnerable partner as teh client.

Thanks for that. Interesting read. I actually did still retain enough wits to ask our solicitor if she would be able to represent solely my partner for the trust deed, but she said that she thought it would not be possible - while also doing our conveyancing - though would have to check with a more senior colleague.

Probably something they decide on a case by case basis.

Annisele

Thrugelmir is quite right; I forgot about the sale fees amongst the burning dogs and the milkmen.

(Are you sure she doesn't get to move the milkman in? Usually both owners have equal rights to invite guests, and equal rights to chuck guests out. So, she lets him in, you chuck him out, she lets him in - and you pretty much need a revolving door).

grifferz

Annisele wrote: »

(Are you sure she doesn't get to move the milkman in? Usually both owners have equal rights to invite guests, and equal rights to chuck guests out. So, she lets him in, you chuck him out, she lets him in - and you pretty much need a revolving door).

Well that is one of the fairly common clauses that I didn't go into, about who gets to move other people in. That's why I said 13 nights out of 14 - move in for 13 days, move out, move back in for 13 days etc.

You mentioning it did make me think that there may be more things that we didn't consider, but it's probably best if I don't go into every single clause here. Wrong board if nothing else..

Thrugelmir

grifferz wrote: »

Well that is one of the fairly common clauses that I didn't go into, about who gets to move other people in. That's why I said 13 nights out of 14 - move in for 13 days, move out, move back in for 13 days etc.

You mentioning it did make me think that there may be more things that we didn't consider, but it's probably best if I don't go into every single clause here. Wrong board if nothing else..

You are over complicating matters. Keep the deed simple and to the point. So that if your relationship were to end. That winding up of financial aspects would be straightforward.

The whole purpose of a deed is to avoid unnecessary legal fees. Without a deed both parties could be looking at a bill of £10,000 to £20,000 to resolve the matter through the courts, i.e. force a sale of the property. Neither of you would be winners in such circumstances. As the fees will be paid out of the equity.

ValHaller

You need to check this out, but on your question of how the mortgage deed is discharged, I believe that it is discharged first and the remainder is distributed according to the trust deed.

I think your understanding of how to construct the trust is roughly right. You are each effectively providing 50% of the equity - she outright and you by renting the money. The difficulty is that if the property loses value, your partner will lose equity and should not expect the full 50% back. Say it goes to 90% of purchase value. She should get 45%. But after the mortgage is paid, there is only 40% available. As the mortgage is paid off, you will have lost nothing, although you should have lost 5%. You should pay this 5% to your partner. You will both have taken a risk with the property and she should expect to share some of the pain if it goes the wrong way.

The discharge method which addresses this in calculation is for the proceeds of the sale to be split between you according to equity shares and your respective mortgage shares to be taken from your shares of the proceeds.This is valid for both increases and decreases of property value. In your case, if the property had dropped by you would be short by 10% of the value to pay back the mortgage and the remainder would be taken from your partner's share - leaving you to find half of your partner's losses as above.

In terms of the sequence of events, with the mortgage deed having to be discharged first, the method cannot be applied in the strict sense. But there is no reason why the calculation could not be embodied in a trust deed. Your partner would have to accept that in the event of a sale after a fall in property value, she would initially fund all the loss of value on the property and she would be depending on you to pay her half her losses.

Be aware that some solicitors (being not inclined to think numerately) cannot get their heads around the method.

getmore4less

Most solicitors are rubbish at do equitable trust deeds for house purchases.

It is possible to make them fare for all price rises and falls but this can result in a debt between the parties which is not ideal.