Offering a private mortgage - any experiences/advice ?

wil471

I am considering offering a private mortgage to facilitate a sale of some agricultural land that I own and I wondered whether anyone here has experience of a private mortgage (from either viewpoint) or any advice. I will be using a solicitor for the real work but I haven't had direct experience of the situation before and forewarned is forearmed (so they say!). In particular things like how, and how much it costs, to register the charge against the property, is there any insurance available (but of course the security is the property) and how easy might it be to act if there were arrears/default ?

Why ? Well, I have this land to sell and someone has expressed a genuine interest but may not be able to reach my asking price, which I do believe is reasonable. There are some advantages to me in selling to them (they know the property etc.) so I was considering this to ease the way. I can consider it because I may not need all of the proceeds immediately and of course the regular, if small, income would be nice. This would only be something in the 15-25,000 area and amount to 20% of the property value.

The alternative is a personal loan but then there is the question of security, guarantors etc. so either way has its issues.

Any thoughts welcome...

Archi_Bald

Sounds rather high risk to me. If your prospective buyer cannot rais a mortgage from one of the typical lenders, there must be a good reason for it. Why would a private lender have any less risk than a mortgage lender? Or ask the other way: why, and how, could your prospective buyer make their regular monthly payments to a private lender but not to a mortgage lender?

wil471

I think you've read something into my post that wasn't there. While I do not know the full details I have no reason to believe that much of the funds are not the prospective purchaser's own money.

Very obviously with any loans the lender takes a risk but in this case there is a security of course. But I was merely asking about the technicalities and mechanics of issuing a private mortgage.

Money_Bunny

We hold a private mortgage. It was relatively easy to set up - basically the solicitor did it all and didn't bat an eyelid (I thought they might consider it to be a strange instruction). I don't recall that the cost of the charge per se was much but the solicitor's fee was in the region of 1K (which in the context of the relatively small sum you're talking about may be disproportionate). Your buyer will also incur solicitor's fees.

No one mentioned the possibility of insurance. I can't imagine such a product is offered as the risk is so very particular to the particular circumstances.

I would add that we were in an exceptional circumstances with compelling reasons for doing what we did which over-rode the risks involved. A private mortgage is inherently risky and we wouldn't have taken the risk were it not for the particular situation.

Also, our's is the first charge on the property. If your's would be a second charge I'm not sure how the first charge holder would take it.

Money_Bunny

Also, you seem to suggest your solicitor hasn't done this before. Our solicitor was a medium sized firm in a farming area well used to slightly off beam property transactions. As I said, our solicitor didn't bat an eyelid. If your solicitor is batting an eyelid it might be time to find another one.

wil471

Thanks...no, I haven't actually discussed this with the solicitor that I used a couple of years ago - but I wanted to find out as much as I could first just in case they are dubious; but there are plenty of solicitors about...
Very many years ago I was offered a private mortgage (but didn't buy that property) and I gathered then that the first charge holder may well object to a second charge but, as I said, I don't know whether this would be the situation here. I did suspect that such arrangements are more common in rural areas, I suppose it is better for farmers etc. to offer loans like this, after all if they kept all that money it would make the mattress rather lumpy
I do also wonder about dealing with default; I rather suspect that the law would take a commonsense view and not allow me to repossess when I only had a 20% claim although I suppose I could ask for possession of a proportionate amount. Not that I'm expecting such an event but, as I said, forewarned....

Annisele

wil471 wrote: »

I do also wonder about dealing with default; I rather suspect that the law would take a commonsense view and not allow me to repossess when I only had a 20% claim although I suppose I could ask for possession of a proportionate amount. Not that I'm expecting such an event but, as I said, forewarned....

I've come across a couple of private mortgages, but for houses rather than agricultural land.

For houses, the courts expect lenders to use possession proceedings as a last resort; making people homeless isn't something to do lightly. But if the court does grant an order for possession, it'll be for the whole property - it wouldn't make sense to give the lender possession of the kitchen but not the bathroom.

For agricultural land I suspect the legal process is similar (but I don't know that for certain). If the court did award possession of 20% of the land, you'd have to split the title - and that would get very messy very fast. I guess a court would be more likely to award the lender possession of all of the land or none of it.

I don't understand why there would be a second charge holder? Wouldn't you have the first charge, and that would be that?

wil471

Annisele wrote: »

very messy very fast. I guess a court would be more likely to award the lender possession of all of the land or none of it.

I suspect that the most likely option would be a forced sale, perhaps an auction, although I doubt that the courts can direct that. But I'm just looking at the worst options so that I can appreciate the cons as well as the pros.

Annisele wrote: »

I don't understand why there would be a second charge holder? Wouldn't you have the first charge, and that would be that?

I'm not aware that there would be two charges but I need to be prepared; as I said I have no reason to believe that the prospective buyer needs other loans but in the event that they were to provide the bulk of the cash but had a small bank loan, say, then the bank could have issues with another loan against the same property.

As I have said this is an area in which I have no direct experience and I do want to investigate all the issues.