Buying land from neighbour who has equity release issue

peterhjohnson

Elmroad82 said:

Ahhhh now that makes sense! I assumed (foolishly) that ER is agreed on a fixed interest rate but it makes sense to track base rates. So if it’s 50k today it could go up to 55k in December due to basic compounding?

ER is usually agreed on a fixed interest rate.
However, the lender is (probably) able to change the deal iin the circumstances described.
The borrower could decide to pay off the ER with a new ER deal from a different ER company and in theory, avoid the 50K
But with today's interest rates they would get a worse deal, probably impossibly so.
The original ER company know that and are offering to resolve the situation for 50k. Probably doesn't look great!

Yes, the 50k offer could certainly change with time. If interest rates crashed, it might even go down!

GDB2222

Elmroad82 said:

Thanks - we know it’s up to the neighbour but all the way along my mum has been suggesting ideas to help expedite the process as they’re rather slow and find this kind of stuff stressful. Just signing up their solicitors was an ordeal….

Equity release is a blanket term that covers different types of arrangement.

One type is a home reversion, whereby the neighbours have already sold their home to the ER company, so they are effectively trying to sell land they don't own! 

Another type is a lifetime mortgage, where the interest rolls up.

As you don't know anything at all about the ER arrangement, I don't think it's helpful to suggest things to the neighbours. It may well just confuse matters, particularly if you have in mind a different sort of ER scheme than the one they have.  

It sounds like this deal isn't going anywhere unless your mum is prepared to pay a lot more than £40k for the land.  Is she?

Elmroad82

Can mum pay the neighbour the 40k as originally offered with an agreement that she put a fence up with a legal document stipulating that when the house is sold that that particular strip is transferred to my mum? Given that ER part own the land on the title this can’t be done any sooner than the sale of the property so I am logically assuming/ hoping that upon sale of the neighbours house 4 things happen concurrently
1) ER is paid off
2)  the neighbours take their cash
3) new owners take ownership (they wouldn’t know about the land as it’s fenced off)
4) the strip of land mum has paid for is transferred from the neighbour to mum via some kind of legal doc that is drafted, signed now and executed upon sale.

user1977

So you mean exchanging contracts now, and completion occurs at an unknown date in the future? What happens if the land is worth much more than £40k then? What happens if your mum moves away first? Is the £40k sitting somewhere in the meantime or does your mum just keep hold of it? Why wouldn't new owners know about the land if its sale hasn't been registered yet?

It doesn't really make much sense.

Elmroad82

I’m looking at potential solutions…
What happens if the land is worth much more than £40k then? The neighbour benefits now by getting the money with a contract to give us the land upon moving.

What happens if your mum moves away first? 

The contract is still executed for the new buyers of mums house and mums house is sold with this ironclad contract (if it’s possible to create one). And valued with the additional garden she’s bought.

Is the £40k sitting somewhere in the meantime or does your mum just keep hold of it? It’s paid to neighbours now giving them the benefit of cash now.

Why wouldn't new owners know about the land if its sale hasn't been registered yet? I mean that if mum has the land and buyers viewed the neighbours house the fence line would be up so it wouldn’t look like the neighbours land. They would only see it through land registry if it was highlighted but the house would be valued at the situation including the contract. I’ve been assured that the house value wouldn’t be impacted though as the neighbours land is so large. The neighbour would be saying “we’re selling the house and garden but that little bit at the end you see fenced off that the neighbour has, is being transferred upon sale of our house so it’s hers”

Most of that seems logical to my mind but can it be enforced?

BarelySentientAI

Elmroad82 said:

Most of that seems logical to my mind but can it be enforced?

You can make a contract for almost anything - as long as it isn't illegal - but all interested parties need to agree.  You might find that the neighbour doesn't have the right to enter into a contract for transfer of part whilst the ER is still in place.

You'd also need someone experienced to draft it, otherwise it would be full of oversights and loopholes and might not work how you expect.  That's going to cost a decent amount of money.  Onward sales of either property would be much more complicated, which could put off many buyers (as soon as anything 'unusual' happens, buyers run or expect discounts).

Titus_Wadd

I'd suggest your mother and neighbour will need legal advice and any contract drafted by solicitors on either said.  But don't spend money doing that until you know that the neighbour has a legal right to sell part of their garden - these seems to be the question to answer.  Only the land-owner and the Equity Release firm can thrash that out between them.

Circuitous discussions about whether or not it might impact or benefit the three parties (- the 2 neighbours and the ER company) doesn't really help move this forward. 

Find out who "owns" the land, and in what proportions? 

Find out whether the Equity Release agreement excludes or limits the selling off of a bit of garden, even if it leaves the property with a remaining big garden?  

I understand that your mother will be disappointed if she can't extend her garden.  I understand that the neighbours see it as a way to raise a bit of cash, but would they go ahead if the money that changed hands goes only to the ER company?  They don't seem to have researched the legalities of their Equity Release agreement so opinions of estate agents or strangers on a forum aren't going to help move this forward until that fundamental question is answered.  Fascinating though it might be for us to speculate how they have burnt through their original Equity Release money; it suggests to me that they don't fully understand their legal and financial position.  That's all your mother needs to know before anything else can be discussed.

Elmroad82

Having drilled into this with the neighbour it turns out ER are saying that the house value will reduce by 50k and they want that 50k to release the land. I’ve seen proof of this.  For obvious reasons, paying 50k doesn’t benefit the neighbour as their garden will reduce in size but they won’t see any cash/  financial benefit as it’s just reducing the debt on the house that they’d normally pay when they died/ sold the house. Estate agents and our independent valuer disagree but I don’t see how the neighbours can dispute the ER valuation as it’s subjective and it an opportunity for ER to reduce their risk by demanding a down payment. I would say the ER is in a 10% (ER) :90% (Neighbour) proportion. 

 I’m not sure how they didn’t spent cash, maybe they gifted it to their daughter who recently bought a house? It’s not really any of my / my mums business really…

MeteredOut

Elmroad82 said:

MeteredOut said:

Elmroad82 said:

Hoenir said:

Are her neighbours trying to raise money without recourse to the ER company.  Othertwise the exercise is of no benefit to them. Who is going to pay all the associated legal charges ? 

I cant seem to redeit the original post... but yes they were trying to raise money. My mother had got the land valued and the valuer said due to the overall size of the garden and the small piece being sold, that selling it would have no impact on the value of the neighbours house. The ER valuer  verbally agreed.... but subsequently in writing then said the house had fallen by 50k in value and that's the issue.

Is the ER saying the house has fallen in value by £50K since purchase (or since the ER was made) or that the neighbour selling the land would reduce the value of the house by £50K below its current value?

Some posts are assuming the former (as what is written across posts is a bit ambiguous) but I'm wondering if it’s actually the latter.

The house has been owned for 20+ years - what I’ve been told is that the ER company have revalued the house since the ER was taken out in 2018 and have valued it as 50k less. They require a payment of 50k to let the neighbour sell the land. I’m not aware of the amount that ER own. My understanding is that selling the garden won’t devalue the house as the garden is so big. My mum was also assured of this when she had an independent valuation done. 

Based on your most recent post, and this the bit highlighted above, It would be good to get clarity.

Are the ER saying the house is *currently* valued at £50K less that when the ER was taken, or that it *would* be valued at £50K less if the part of the land is sold? Or both?

The latter would make sense (which I why i surmised this previously).

The neighbour needs to get legal advice as to what the ER can demand/block regarding sale of any land. It doesn't seem right that the ER could claim £50K for a £40K land sale, but maybe they think it is being sold under value.

user1977

MeteredOut said:

Elmroad82 said:

MeteredOut said:

Elmroad82 said:

Hoenir said:

Are her neighbours trying to raise money without recourse to the ER company.  Othertwise the exercise is of no benefit to them. Who is going to pay all the associated legal charges ? 

I cant seem to redeit the original post... but yes they were trying to raise money. My mother had got the land valued and the valuer said due to the overall size of the garden and the small piece being sold, that selling it would have no impact on the value of the neighbours house. The ER valuer  verbally agreed.... but subsequently in writing then said the house had fallen by 50k in value and that's the issue.

Is the ER saying the house has fallen in value by £50K since purchase (or since the ER was made) or that the neighbour selling the land would reduce the value of the house by £50K below its current value?

Some posts are assuming the former (as what is written across posts is a bit ambiguous) but I'm wondering if it’s actually the latter.

The house has been owned for 20+ years - what I’ve been told is that the ER company have revalued the house since the ER was taken out in 2018 and have valued it as 50k less. They require a payment of 50k to let the neighbour sell the land. I’m not aware of the amount that ER own. My understanding is that selling the garden won’t devalue the house as the garden is so big. My mum was also assured of this when she had an independent valuation done. 

The neighbour needs to get legal advice as to what the ER can demand/block regarding sale of any land. It doesn't seem right that the ER could claim all £50K of a £50K land sale, but it depends what is written into the contract.

As I said above, I wouldn't have thought it normal for any residential lender to have an obligation to agree to such a request, no matter how objectively reasonable it may be (and even if they had, I would probably expect them to be able to require the price to be applied to their account). If you don't like their attitude, you can go and remortgage...