Hi I recently purchased a property.
My parents took out the full 800k and pretty much gifted it to me. Essentially this means the house I will live in has no debt under my name.
Now, to avoid me just selling it off and running with the money they want to put a caveat on it. What implications does this have for me or them? Does this mean I can't sell it until I get permission from them?
Also does it mean it will avoid future wife’s being able to take 50% off me if things go bad? The title is under my name, but I really do not want to lose 50%, can a caveat in anyway prevent people from having a claim to my assets if my parents register a caveat on the property? Although the title is in my name the money was provided by my parents, can I use this argument to prevent a future claim to take my assets?
Furthermore, settlement is not to June. The conveyancer said they should put the caveat on once it settles in my name rather then straight away. Why should we do this after settlement? As we will be paying the $130 regardless, isn’t it better to just get the caveat on the property now to avoid anyone else purchasing the property or registering an interest before settlement ? Why is she telling us to wait until settlement to register the caveat? Is it because my parents do not have a caveatable interest as a mortgagor until the property is settled in my name? Can the same thing I am attempting to do not be done now?
If we are paying $130 wouldnt it be better for my parents to put a caveat on the property now? This will register their interest on the property so no one else can purchase it and will also prevent me from selling it once its settled in my name on the title? Or can they not put a caveat for the second reason only until settlement? THe conveyancer is telling them you can only put a caveat on the property to avoid a second purchaser and that they have to wait until its settled in my name to put a caveat to register interset as a mortgagor on the title.The reason I ask is because another agent approached me to on sell the property. My parents dont believe that the agent will sell it twice because it was bought at auction. However, if we are putting a caveat on it regardless why cant we do it now? Is the conveyancer telling the truth? If we put a caveat on it now my parents will have to do it again on settlement to register a mortgagor interest?
Some buyers put caveats on properties when a depoist is paid – usually larger transactions. They can do this because they have paid a deposit and therefore have a financial interest in the property. For the transfer to take place at settlement, the caveat usually needs to be lifted and then put on again after settlement.
The banks do not actually need a caveat to be lifted to release and put mortgages on a property- the caveat just alerts them to someone elses potential financial interest. The banks prefer to have third party caveats lifted before they settle and then put on after them to confirm they have priority.
If you went through a devorce your parents could claim to have a financiall interest in the property, so could you, so could your wife. If the court deems the funds were provided to you as a gift your out of luck as it takes their financial interest out of the equastion.
a caveat prevents further dealings on the property and notifys the world that someone has an interest in the property.
You should be advised to put a caveat on before settlement. The law society of NSW has advised solicitors that they should recomend this or they could be negligent. If someone where to register a caveat before you settle they could take priority. Do a search on Black v garnot. You should use a lawyer!
Family law is a difficult area. When they are assessing a property settlement they look at a number of things including who contributed to the property and how much. Contributions are not just money, but upkeep too. So if you get a wife and she takes care of it, doing the gardens and cleaning it then she may be entitled to something.
caveats are not really a form of security. It would be better for you if your parents took a mortgage over your property. That would be much safer in protecting the asset from future wives. But this can be risky too – if your parents went bankrupt you could have to pay back the loan to the bankruptcy trustee. Seek legal advice as it may be better for them to gift the money to a discretionary trust and have the trust lend you the money with a mortgage over your house.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The conveyancer told my dad that if he wants a caveat on the title similar to that of a mortgage he has to get the caveat after settlement as it’s a different caveat to one before the place settles.she said if he was to put a caveat on prior to settlement it only protects sum1 else from buying it for a caveat to show register on title that my parents own the debt and it has to be cleared before I sell the conveyancer is saying this gas to be done after settlement.
The conveyancer told my dad that if he wants a caveat on the title similar to that of a mortgage he has to get the caveat after settlement as it’s a different caveat to one before the place settles.she said if he was to put a caveat on prior to settlement it only protects sum1 else from buying it for a caveat to show register on title that my parents own the debt and it has to be cleared before I sell the conveyancer is saying this gas to be done after settlement.
crazy advice. Why use a conveyancer when it is a $800,000 property and you need legal advice too.
In black v garnot, the person exchanged contracts and went to settle 42 days later. The solicitor did a title check before settlement at around 10am. They then when to settlement and exchanged money and paper work. Unknown to them there was another party who had commenced court proceedsing against the vendor (for an unrelated matter) and they had a court judgment. Then then got a writ on the property which was registered after the solicitor did his final check. The end result was that the person with the writ took priority as their interest was registered first. The purchaser lost the property. Having lodged a caveat would have protected themselves and given themselves priority.
Putting a caveat on before settlement will protect you from someone else buying the property or the owner mortgaging it for a higher amount or someone else registering some interest – maybe a family law claim etc.
Once the property settles you dad should take a mortgage over the property rather than a caveat as the mortgage will give the highest form of priority.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Would you go a step further and support the mortgage with some form of loan contract. This could put a dollar amount on the father’s interest. A mortgage lodged by itself would have NIL monitory value?
As my father has gifted my the loan and I am going to claim this as a main residence once I sell can I still claim the interest expense on my tax? Or can my parents claim the interest on their tax?
you really do need some advice as there are serious tax consequences if you get this wrong too.
If the funds are gifted then the interest won't be deductible.
If you borrow money from someone and rent the house out then the interest on this loan should be deductible to you. The person who lent you the money will then be receiving an income in the form of interest that you are paying them and they will have to add this income to their other income and pay tax on it. If the lender borrows the money and then onlends it to you they may be able to claim the interest they will pay as a deduction against the interest they receive.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
terry are you located in Melbourne?
Terryw wrote:you really do need some advice as there are serious tax consequences if you get this wrong too.If the funds are gifted then the interest won't be deductible.
For myself and my parents who have gifted it to me? Why cant my parents claim the interest?
Terryw wrote:If the lender borrows the money and then onlends it to you they may be able to claim the interest they will pay as a deduction against the interest they receive.
Is this different to what my parents have done? Is this different to gifting? If yes how do I make sure the money my parents give me fall under this defintion?
Essentially gifting or doing it this way are doing the same thing arent they? But with the second way you can claim the interest?
propertyboy wrote:Terryw wrote:you really do need some advice as there are serious tax consequences if you get this wrong too.If the funds are gifted then the interest won't be deductible.
For myself and my parents who have gifted it to me? Why cant my parents claim the interest?
Interest is only claimable where the money is borrowed and used for a business or investment related purpose.
I assume your parents are going to borrow some money from their LOC or other loan and give it or onlend it to you. There is a big difference between giving and lending. With a gift you don't expect it back. So if someone borrows money and then gifts it to you then they will not be getting any return – there is no business or investing going on – so the interest would not be deductible.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
propertyboy wrote:Terryw wrote:If the lender borrows the money and then onlends it to you they may be able to claim the interest they will pay as a deduction against the interest they receive.
Is this different to what my parents have done? Is this different to gifting? If yes how do I make sure the money my parents give me fall under this defintion?
Essentially gifting or doing it this way are doing the same thing arent they? But with the second way you can claim the interest?
I am not sure exactly what your parents have done. You are using the word 'gift' but maybe your parents expect the money back – in that case it is really a loan.
You really should see a lawyer, especially with the large sum of money involved.
You will need to consider many issues such as:
– getting a written loan agreement drawn up
– lodging mortgages
– doing an updated will
– family law issues
– tax consequences
etcIf you don't get proper advice then who knows what could happen. Imagine if you moved in with someone or you died in an accident or went bankrupt. Interest on $800,000 would be about $50,000 per year – imagine if this was not deductible?
You need to do things properly to protect your parents.
I am located in Sydney.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
my parents are taking this loan out on their existing property.
What do they have to do for myself or them to be able to claim interest? Give me the money via another loan?
Do you mean they are borrowing it from a loan on their property?
first, You will need a writen loan agreement. Stamp duty may be payable on this – varies from state to state
secondly you have to make sure the money is not contaminated by mixing it with other money on the way to the other party. It would be good if they could get a cheque directly from this loan and pay the vendor. Make sure they don't transfer the money from their loan to their cheque account or the interest may not be deductible (see the case of Domjan). They need legal advice on this.
Then your parents should register the mortgage.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry,
My father is going to use this template to register a loan agreement
http://www.lawcentral.com.au/CreateDoc/createlink.asp?docId=28
Is this a credible website and will that agreement hold up? Is it legally sound and can it be used to justifiy that my parents have loaned the money to me and therefore permit them to claim interest they pay on the loan?
How do they also register a mortgage over the place? By registering a loan using the contract in the link can they also put a mortgage on the place within the loan agreement?
I think your parents should see a lawyer. especially for the mortgage. They must be registered at the land titles office .
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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