Mortgage and ownership query

steeeb

There are many issues here.

The family need to get together and sort the issues out first and foremost, otherwise it likely spells out some combination of repossession and mortgage fraud and everyone ending up in trouble and never speaking again.

It SOUNDS as if Tom and Sam are the LEGAL owners of the property.

The parents can't be expected to have lived there rent free for 15 years (Although I then doubt Tom/Sam paid "keep" either) - they also had all the risk - if the property went down in value and they all fell out it'd be Tom and Sams problem. In the same way.. it was clearly done to get around the fact the parents couldn't get a mortgage.

So, the family as a whole need to get together and sort the problem out in a fair way.

But, in any case. The parents still might not be able to get a mortgage on the property. Tom and Sam might be liable to CGT if it was to be sold or transferred.

There are many many issues here. All because Tom and Sam helped out their parents. It's a shame.

kingfisherblue

Thank you for your responses. I know it's a mess. That's why I'm trying to help Tom.

The property is in a deprived part of the country. Current value probably about £80-90k. I don't know the original purchase price, but judging from the area and prices at the time, around £25-30k. I don't know if this makes a difference for CGT.

Tom and Sam were paying buildings insurance when they lived there. Parents are currently paying it. Dad considers it to be his house, so it is possible that he has stated that he owns it, to insurance company.

I suggested to Tom last night that he and Sam should pay the mortgage and insurance. He agreed that they should consider this.

Steeeb, the father refuses to discuss it. As far as he is concerned, it is his house and there is nothing to discuss. Both parents are now in their mid to late sixties, so no chance of taking out a mortgage. Tom and Sam were just trying to help their parents, and they trusted them. They were very naive! Certainly no fraud was intended. They got the mortgage because their parents asked them to, not expecting anything like this in the future.

Looking at moving forward, Tom and Sam could resume paying the mortgage and the buildings insurance. Would they be allowed to let their parents live there, probably rent free, if they inform the mortgage company that they themselves reside elsewhere, but are allowing their parents to stay in the property?

One possibility, if the above suggestion is allowed, is to advise their parents that the property will be sold once the mortgage has been paid up. This would give the parents time to consider their options and look at rented properties. I know it would still cause arguments, but it would possibly be a fair solution.

The other option is to let the parents live in the property, but ask the mortgage provider if they can charge rent (obviously this could mean higher interest rate, plus informing HMRC, but Tom is aware of this). It would still cause discord within the family though.

Tom wants to sort this out. Sam doesn't like confrontation and will go along with whatever dad says (or at least, will agree then do nothing). Parents don't think there is a problem and won't discuss it. So although the family should get together and talk things through, I can't see it happening.

KRB2725

If it was mortgaged 20 years ago, value 25-30k and presumably there was a deposit, then surely the mortgage balance must be tiny by now?

I would get an up to date mortgage balance and then throw as much cash at it as possible so that the mortgage debt is discharged. That takes one complication away.

JimmyTheWig

Is it a repayment mortgage or interest only?

kingfisherblue

Emma, I've suggested that Tom requests a mortgage statement. Paying the balance might be a possibility.

Jimmy, I don't know if it was repayment or interest only. If it was interest only, would there have been endowment payments as well? These have never been mentioned, so I have assumed it was a repayment mortgage. I think endowment mortgages had past their popularity by then.

AdrianC

I presume mortgage statements are going to the property, and the parents are opening their sons' post?

Tom & Sam definitely need to make sure mortgage payments are kept up. IIWT, I'd be changing my correspondence address with the lender, and making sure that they're aware that the borrowers are non-resident. I very much doubt it'll be an issue, this far into the loan.

xylophone

Twenty years ago, Tom and Sam bought a house (with the help of a mortgage) and allowed their parents to live with them in the house they had bought? Tom and Sam were then, and remain, the legal and beneficial owners of the property?

The parents were in effect lodgers?


The mortgage used to be paid from Tom and Sam's joint account - mother used to collect the money required in cash from Tom and Sam and then pay it into the joint account so that the mortgage DD/SO could be taken.

Presumably the house insurance was in Tom and Sam's name and they paid the premium from this joint account.

Five years ago, the parents agreed to make the mortgage payments and have done so, presumably from their own account - they have also insured the house but have not stated that they are lodgers rather than owner occupiers.

These payments could simply be regarded as payments made by the parents on behalf of their two sons - a loan, if you like. Alternatively, they could be regarded as rent but this could lead to tax considerations for Tom and Sam.

Might it be as well for Tom and Sam to explain to the mortgagee that they are no longer living in the property, make whatever arrangements are necessary to resume payments of the mortgage, insure the property as landlords, (and advise their parents that this has been done) repay the "loan" to the parents, and make sure that they are complying with their obligations as landlords?

It should also be made clear to the parents (formally in writing if necessary) that they are neither the legal nor beneficial owners of the property and therefore cannot leave it in their wills.

Tom and Sam might do well to have any such letter drafted and sent by a solicitor?

kingfisherblue

AdrianC wrote: »

I presume mortgage statements are going to the property, and the parents are opening their sons' post?

Tom & Sam definitely need to make sure mortgage payments are kept up. IIWT, I'd be changing my correspondence address with the lender, and making sure that they're aware that the borrowers are non-resident. I very much doubt it'll be an issue, this far into the loan.

I queried mortgage statements with Tom yesterday, and you are correct, they are still being sent to the property address and the parents are opening their sons' post. I advised Tom to request an up-to-date statement and that all future statements are sent to his current address. Thank you for your comments - very helpful, especially as they are nonresident.

kingfisherblue

Xylophone, you're spot on. Thank you for setting it out more clearly. I know I waffle too much

Returning the money paid by the parents, and considering it a 'loan' is a way forward that hasnt been thought about, but it's worth Tom and Sam discussing it. Your suggestions are excellent, thank you. I think a solicitor needs to be involved at some stage, but perhaps, as you say, a letter will suffice.

Now, I'm a bit confused. The parents are not the legal or beneficial owners - what does this mean? I know what a legal owner is, but not a beneficial owner. Could you explain please?

I really appreciate the help that I am receiving. I plan to print this thread for Tom, so that he has a copy of all the comments and advice.

xylophone

http://uk.practicallaw.com/3-202-2697

It is possible for a person to hold property as a nominee or trustee for another.

When the house was purchased, from what you have said, the house was registered in the name of the two sons who raised the mortgage to buy the property, and paid to insure it. They also made the repayments for fifteen years.

The parents have paid the mortgage for the last five years - they did this presumably because the sons had moved out and felt that they should make this contribution in lieu of rent - or perhaps Tom and Sam required the parents to do this in lieu of rent? At all events, Sam and Tom did not agree that making these payments would give their parents any equitable interest in the property?

This did not change the fact that the sons remained the legal owners of the property - it seems to me that it did not change the beneficial ownership either since their payments could be regarded as rent or loan etc. ( I say this because I think that there have been cases where there have been arguments around whether contributing to a mortgage can create some beneficial interest on sale etc) - this point would be best sorted out with the solicitor engaged by Tom and Sam.

In their position I would be taking legal advice and regularising the situation as soon as possible.