Advice on legal charge on property

p5x

I'm just after some advice for a friend who is lending money towards a house purchase for his son and daughter in law + kids. The house would be in the sons name only but his solicitor has advised to put a legal charge on the property to avoid it being sold without the father's consent or until the loan amount had been paid.

What would happen in the event of divorce in this situation? Would the daughter in law be entitled to a share of the property or would it be possible for the father to force a sale of the property?

xylophone

Is the son also raising a mortgage from bank/building society etc against the property? Will the mortgagee be content that this would be a loan deposit rather than a gifted deposit?

If there is a mortgage, will the mortgagee be prepared to accept that only the son's name would appear on the deeds?

The mortgagee would almost certainly want the first charge against the property - the father would then have a second charge.

If there were a divorce, the court would certainly regard the home as a marital asset regardless of whether or not the wife's name was on the deeds.

If the house were sold however, the mortgagee and then the father would have the legal right to repayment.

eddddy

If it's a case of the parent lending the deposit and a mortgage company lending the rest - it might be difficult to find a mortgage lender who would accept that arrangement.

(Another poster mentioned that the only lender they could find who would accept this type of arrangement was natwest.)

Mortgage companies normally want the borrowers to have their own significant investment in the property. Otherwise, in this example, if things get difficult, the borrower can just stop paying the mortgage and 'walk away' from the property with no losses - leaving the parent and the bank to sort out the mess and suffer any loss.

p5x

They are buying the house outright and using the father's money as a loan deposit rather than a gift so there wouldn't be a mortgage on the property.

Would the legal charge only come into effect were the property to be sold in this situation? Would a trust deed offer the father or son any more protection in the event of a divorce?

xylophone

Then the father is in effect the mortgagee and will take a first charge on the property such that if it is sold, he will have first call on the sale proceeds up to the level of any loan that has not been repaid.

It seems that the father proposes making the loan to the son only and the house will be bought in his name only.

However, this would not prevent the house from being considered a marital asset in the event of a divorce?


Presumably the son would take out insurance to ensure that in the event of his death, his father would be repaid.

Father and son should take advice from a solicitor.