Trust deed apportionment, unequal deposit, equal ongoing payments

getmore4less

Does the  £635k include all buying costs and the person paying for those getting it added to their share? 

It needs to be clear that the net proceeds of sale does not include taking of the mortgage  that get paid after the  initial split.

Going with the rounded numbers and a simple interest only mortgage £635k split...
£220k  ~35%
£150k ~ 24%
£265k  ~41%(really 41.7%)

house doubles.net before mortgage £1270k,  mortgage still  £265k  net after mortgage 1,005K
each should get back(1/2 outstanding mortgage taken off the mortgage share after split)
£440,000 + £132.5k = £572.5k
£300,000 + £132.5k = £432.5k

rounded ((1/2 outstanding mortgage taken off the mortgage share after split))
£444.5k + £127.85  = £572.35k 
£304.8k + £127.85 = £432.65k
rounding makes a small difference not enough to worry about.

after mortgage taken before the split.
£351.75k + £206.025 = £557.775
£241.20k + £206.025 = £447.225

That quite a big difference and favours the smaller deposit a lot.

don't forget that maintenance and improvement should not be split 50:50.

getmore4less

there are a few things you might want to consider.

1. can't pay won't pay,  how do you account for situation where one party is not paying their 50% of the mortgage
2. unequal overpayments.  one party wants to reduce their debt quicker than the other

3. exit clauses   what can trigger the sale or buyout and rules for those or if one move out an the other stays how it that handled.

You have one exit case, the death of one party  but that does not cover how that is done or how long the survivor has to deal with the need to raise a substantial sum to pay into the estate of the deceased one.

carl0s

getmore4less said:

there are a few things you might want to consider.

1. can't pay won't pay,  how do you account for situation where one party is not paying their 50% of the mortgage
2. unequal overpayments.  one party wants to reduce their debt quicker than the other

3. exit clauses   what can trigger the sale or buyout and rules for those or if one move out an the other stays how it that handled.

You have one exit case, the death of one party  but that does not cover how that is done or how long the survivor has to deal with the need to raise a substantial sum to pay into the estate of the deceased one.

Yeah we have thought about those. Historically I John has overpaid a lot (house increased in value by £85k, but has mostly cleared mortgage in 8 years and now has £220k to put in the pot), and Sarah has not overpaid at all and has had to take money from her house sale to clear debts as part of this process (house increased in value by £150k in ~7 years, and only has that £150k to put in the pot.).
Only fair/equal overpayments will be made. John will consider investing his money elsewhere initially and see how things go.

carl0s

getmore4less said:

Does the  £635k include all buying costs and the person paying for those getting it added to their share? 

It needs to be clear that the net proceeds of sale does not include taking of the mortgage  that get paid after the  initial split.

Going with the rounded numbers and a simple interest only mortgage £635k split...
£220k  ~35%
£150k ~ 24%
£265k  ~41%(really 41.7%)

house doubles.net before mortgage £1270k,  mortgage still  £265k  net after mortgage 1,005K
each should get back(1/2 outstanding mortgage taken off the mortgage share after split)
£440,000 + £132.5k = £572.5k
£300,000 + £132.5k = £432.5k

rounded ((1/2 outstanding mortgage taken off the mortgage share after split))
£444.5k + £127.85  = £572.35k 
£304.8k + £127.85 = £432.65k
rounding makes a small difference not enough to worry about.

after mortgage taken before the split.
£351.75k + £206.025 = £557.775
£241.20k + £206.025 = £447.225

That quite a big difference and favours the smaller deposit a lot.

don't forget that maintenance and improvement should not be split 50:50.

Thanks for this. I do understand and have asked for the wording to be clarified.
Regarding the maintenance and improvements, am I correct to assume that the larger shareholder should contribute a greater share to the improvements costs? I don't think we want to get too fussy here.. we are a couple.. but if things go belly up in 2 years time, I don't want to lose £10k that should rightfully have been mine.
TBH, things can't go belly up for the first 5 years anyway otherwise we have a very high E.R.P on the 5 year fixed mortgage, unless we fell out and I bought her share and stayed in the house.

getmore4less

Might be a lot simpler if you just both put in £150k  each, still <53% LTV so best mortgage deals available,

Own 50:50 no fancy calculations that can be misinterpreted later.

carl0s

getmore4less said:

Might be a lot simpler if you just both put in £150k  each, still <53% LTV so best mortgage deals available,

Own 50:50 no fancy calculations that can be misinterpreted later.

bit late for that, contracts were exchanged yesterday, besides I wanted as small of a mortgage as possible. Debt makes me very anxious.

When I queried with solicitor this morning, she said:

Is the mortgage to be repaid before any division of the balance?

and I replied:

No I would expect it to be:

• Division 35% / 24%
• Money left in pot pays mortgage.
• Any surplus or mortgage-deficit is shared 50/50

To which she has now replied:

Are you sure. Usually mortgage debt is taken of before there is any division because that is a debt that has to be paid.

carl0s

I just wrote back:
If we did it that way, then if we sold tomorrow at same price of 635,000, we would each get 35% and 24% of 370,000, and then the remainder split 50/50. When it should be 35% of 635,000. I would have just handed over nearly £15k to Sarah overnight.

I.e.

Sell for 635,000

John has 129,500 (35% of 370,000)

Sarah has 88,800 (24% of 370,000)

So 218,300 has been apportioned so far.

Mortgage co gets 265,000 back

That leaves 151,700 that would be split 50/50, i.e. 75,850 each

John ends up with 205,350

Sarah ends up with 164,650

What I proposed is fairer.

getmore4less

Given the number of issues with solicitor drawn up deeds we get here it seems that many are fairly clueless with numbers except when it comes to charging by the minute.

carl0s

She has said:... obviously I don't want Sarah to think I'm up toi mischief.. but I think what I am proposing is most fair.

That really is not how it is usually done.

 

As the mortgage is a debt it has to be paid first and is usually executed before any division can be dealt with. However I am as you know only drafting this based upon what you instruct so have amended as follows (in bold):-

 

BACKGROUND

2.1           Party 1 and Party 2 have today completed their purchase of the Property for the purchase price of six hundred and thirty five thousand pounds (£635,000).

 

The parties acknowledge and confirm that each have made the following contributions towards the initial purchase of the Property, as follows:-

 

Party 1             Two hundred and twenty thousand pounds (£220,000) the                             initial deposit (plus one half of the cost of the solicitors fees,                       disbursements and stamp duty land tax)

 

Party 2             One hundred and fifty thousand pounds (£150,000) the initial                       deposit (plus one half of the cost of the solicitors fees,                                disbursements and stamp duty land tax)

 

The initial mortgage advance being two hundred and sixty five thousand pounds (£265,000).

 

Party 1 and Party 2 confirm that they hold the Property on Trust (before the deduction of any mortgage debt and any sale costs) between them for the initial proportions as to:-

 

Party 1:            35.00%

Party 2:            24.00%

 

The balance being used to pay any mortgage debt and sale costs then any surplus or deficit to be shared 50/50 as to Party 1 and Party 2.

 

3.         BENEFICIAL INTERESTS

3.1           The parties shall hold the Property and the gross proceeds of the sale and the income deriving from the Property, on trust for themselves being 35.00% for Party 1 and 24.00% for Party 2 and then the proceeds be used to pay any mortgage debt and sale costs then the proceeds thereafter shall be held as tenants in common in the following shares:

 

Party (1)           John                                         50.00%; and

Party (2)           Sarah                                         50.00%

 

            If there is any deficit that shall be borne by the parties on a 50/50

Candice-Marie

Sorry to jump in, but we're going to have to draw up some sort of similar document in the next few months.  It sounds like it's a Trust Deed that we'll need  - were you advised that was the case, and does the solicitor need a particular specialism?