I recently purchased a place.
The full amount was borrowed by my parents against their existing property then onlent to me via another loan agreement
So basically now the house is in my name as cash and I am the only person on title and the full 800k loan is against my parents property which was used as security (not my house).
I was thinking of getting my parents to register a mortgage on the property so if in a worst case scenario if any litigation etc was to occur against me before my property was sold to pay damages my parents would have to be repaid the amount they loaned.
Would there be any negatives in doing this or should we go and register a mortgage ASAP? I have complete trust in my parents and know if I want to sell they will be willing to discharge the mortgage and essentially my money is theirs so that is not the problem. What I am asking is, would there be any negative factors why I should not register the mortgage? E.g taxation issues? Stamp duty payments once mortgage discharged etc etc?
or is the only cost really the $99 to register the mortgage and the $99 to discharge?
what if they get sued?
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
ie your parents go bankrupt and their creditors get the money owed to the parents by yourself. that is a possible downside. But not registering it will probably not make much difference.
I am still amazed you have risked all this money without proper advice.
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
yeh but if they get sued, the property is in my name, they dont own it they are just have registered a mortgage. I am happy to repay someone else, the property will still be mine wont it? I just repay the creditor and my parents would be bankrupt so they wouldnt repay the 800k they loaned and onlent to me. If I dont register a mortgage the property could be sold and the debt will also exist.
Bit confused by that point.
So you are saying if NAB,Westpac were to go bankrupt all homes they have mortgaged would be sold and the owner would lose?
No, i was thinking maybe your parents could have lent you via a trust – but it would still be all at risk anyway.
If they go down you would just have to repay the loan to someone else. Just don't get behind on your repayments and you should be right.
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
yeh but if my parents go bust, they would be bankrupt anyway so technically the 800k they borrowed from the bank they wouldnt be able to repay so I would just make the repayments back to the bank instead of them as the bank would step in and take charge over the mortgage not the actual property? Is that correct? Or would the bank actually have right to my house eventhough I am on title and there is no connection between myself and them.
If the bank only take charge of the mortgage,I am in no different situation, I still have to make repayments and the property is in my name? Is that correct?
However, if I do not mortgage, say I cause damage, my house could be sold off and 800k paid in damages as there is no trace to my parents and they would also have to continue repay the 800k loan which they have onlent so essentially we lose 1.6m.
Is this correct?
So really there is no reason why we should not mortgage?
Or are there tax/stamp duty/other cost implications?
I think that it pretty much it. But even without the mortgage you can still demonstrate that your parents have lent you money and you would still owe them. But having a mortgage means their loan is secured by your property and it will give them priority if something goes wrong and creditors come after you.
I think stamp duty on mortgages have been abolished and I don't know of any tax implications. I still suggest you see a lawyer though. spend $300 on some advice as if you get it wrong it will cost much more to fix.
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
There is a wide variety of mortgage fraud occurring everywhere. People do this to gain money for profit. The sad thing is most people, who are victimized by scam artists, are usually those who are financially troubled. They can also be the ones who are on the verge of losing their homes.
^sorry?
I am not using the mortgage to demonstrate that my parents have lent money to me. I am using it so that I dont lose my house and as it is essentially cash all in my name. The worst thing is as it was borrowed by my parents then onlent to me not only would I lose my house my parents would still have the 800k debt.
I jsut had a think about this, if my parents mortgage the place will that affect the amount banks will lend to me?
At the moment I have 800k property in my name all paid off. My parents have the mortgage and the bank they borrowed the money from has recourse to their home not my home. So my ability to get extra finance is very good at the moment. Will mortgaging the place for added security have a negative of a reducing my borrowing capacity? These are the negatives I am refering to I want to get my head around before I decide wheter I register a mortgage on the place.
Yes. Because you have a $800,000 debt.
Even if they don't register you still have this debt and should declare it. If you put the full value of the property down on your assets and liabilities statement without the debt you could run into problems later on if you were to go bankrupt.Your bankruptcy trustee could argue there was no 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
how would the bank know I have this debt if the agreement is between myself and my parents?
How do banks even know what other banks you have debt with is there some sort of register? Or do they just look at the title and see if a bank is down as a mortgagor?
The bank will ask for your assets and liabilities. You could not tell them and they may not find out, but this will have asset protection consequences.
For loans with other banks they can see a copy of your credit report which lists all the loans yuo have applied for. They probably wouldn't do title checks as this costs money.
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
If you want to have peace of mind for your parents, consider registering a caveat (in their favour). This will prevent you borrowing against the property without their consent (reducing their access to the property) but also affording you some protection by having a prior claim over the property as well.
^ Our concern is outside parties taking claim of my property if I was to be sued. We have complete faith and trust in each other my money is my parents money. However, dont want to register a mortgage if it has too many disadvantages as we dont really have to but can if we want its always an option. We can structure it to get best format really.
I think there are a few things to consider here
Whether or not there is a mortgage you have borrowed money from your parents. If it is a loan it is returnable. So of they go bankrupt you will still have to return the money to their bankruptcy trustee. If you go bankrupt they have to chase the money from your bankruptcy trustee.
Having a mortgage will help clearly establish it is a loan, and a loan agreement will establish the terms of the loan. If they don't take a mortgage they will be unsecured creditors. It is possible that someone could get ahead of them in priority and they may not get back the full value of the loan.
If there is no mortgage it may also be harder to argue later, if bankruptcy happens etc, that this was a legitimate loan. When bankruptcy happens many argue that all sorts of loans where entered into with family members.
If your parents gifted you the money then there may be issues with the claw back provisions of the bankruptcy act later on.
What you tell a bank on a loan application may also come to light later on. So if you fail to tell the bank you have a debt to your parents and then later go bankrupt you will be arguing that you did have a loan, but the creditors will be arguing you didn't and they may be able to subpoena documents to show you never declared it.
Also think about family law issues – if you get divorced or separated.
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
But can all those issues be alleviated if they simply discharge the mortgage?
If the mortgage is discharged then the security for the loan is gone. So if you get divorced or sued/bankrupted then you will have issues.
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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