Cross Collaterisation

Cross collaterisation means that the security for the next loan comes from all your properties.
ip1 value = $345,000 and ip2 value of $150,000 total value = 495,000
ip1 loan of $315,000 and ip3 loan of $130,006 = total loan of $451,000

new total loan $190k + total loans of 451 = $641,000
new total value $495,000 + 190,000 = $685,000
LVR = 641/685 = 93% LVR most likely LMI for next loan would be added to loan to push LVR up to 95%

in plain English
 Cross collaterisation means that if you default on any of the three loans  you risk the bank selling all three houses to pay back the debt.

A closer look
ip1 = 315/345 = 91% LVR
ip2 = 130/150 = 86% LVR
Some of the more experienced mortgage brokers on this forum would suggest getting a line of credit on the existing loans
However you may only be able to borrow on LOC to 80% LVR but both existing loans are over this amount.

You will have to decide if you want the inflexibility and dangerous risk of cross colaterisation or if you want to wait to pay more off the loans and have the values increase on the existing properties.

It seems every time you talk to a lender the question arises sometime during the discussion, "do you want to use a property as security". My answer to date has always been NO. I think they must be taught to do it. There very cheeky! I was asked again today.

That does not mean that i would not cross collateralize for example if i new i was selling a reno property in 6 mths- 2 years  i might offer that security if it meant getting the deal across the line. I would know the security would be released once the reno property proceeds paid down the loan.

For now if it means not getting a loan i say no because currently i am purchasing for income and slight growth and or added equity via improvements, over the longer term.

What would happen is the bank would firstly reposses any property mortgaged and sell that. If that is not enough to cover the debt they will then take further action to cover the shortfall. If a bank gets a judgment against someone they can then start proceedings to seize other property, even items not mortgaged.

Hello all,  (New to the game) 
Is this 100% confirmed ?  The loan contract you sign says what property secures what loan. So how can they go against that,  (in a default situation) , even if they are with the same bank…. ? 

Confusing…

Cheers,
Cartman

Hi Cartman – and welcome to the forum. Now……They can (in extreme situations) and its called 'The All-Monies Clause'. Cheers 

The all monies clause does not only relate to money with that bank – it covers all assets regardless where they are. The concept that splitting lending protects you in the event of foreclosure is a bit of a myth. A few years ago nab tried to sell a directors home when his company was liquidated and had gone broke. Although the property was mortgaged as security for the loan, the court orderred in favor of the customer. The bank had to sell the borrowers assets before the guarantors (he provided directors guarantee and was 100% shareholder). The company had sufficent assets to clear the debt therefore the bank could not simply choose to liquidate the guarantor asset first because it was easier. In the event the bank did not recover funds from the borrower, they could then sell his house.

In the event you have a loan and the bank is foreclosing, the bank will need to sell the security specific to that contract. In the event the property is not adequate or the bank sells and there is still a loss, the all monies clause allows the bank to seize other assets. If you still owe the bank money the courts will freeze other assets e.g. property even with other banks etc. Even a clients partners and families assets can be frozen if they have made a financial contribution to them eg. House in wifes name but you paid the depoist or make all the repayments.

A lot of people sell the avoid cross collateralisation spin as asset protection however it’s a load of bollocks. If you owe a bank money – and you try to split and move assets thinking the courts and banks won’t be able to trace then. Your living in fairy land.

Of couse, because most people are never foreclosed on. They beleive the are very smart splitting lending…

Split banking has benefits – but most are flawed.

Must agree with banker . From what I understand  and am told by reliable sources banker is correct.  There are alot of myths that are perpetuated  by spuikers  and authors  that the  sheeple accept as Gosble  Who mindlessly follow and repeat  it until every-one thinks it is true. Alot of those myths are contiinuosly repeated on this forum.

Terry is right that there are downsides to cross collateralisation. There are benefits though – albiet most people here don’t agree with me.

Forgeting about cc and focusing on the split banking issue. If you go to see a bank direct and they already have all of your banking e.g. All loans , accounts, credit cards etc – you dont need to provide anyhing. Regular salary credits prove your income and they have all your statements on their system. CBA don’t event need a new privacy statement if you signed their post 2007 version.

I’ve worked as a broker and as a banker. My preference is to use one lender and be in a position to move quickly.

If you are an aggressive investor would you rather be able to buy cheap from people in a stressed sale position e.g. Knock 10k of the price for a 7 day settlement. Or would you rather split all your banking so in the event you do go broke you can move your properties delaying the banks collecion process – I’d rather have the first option.

The other issue is simplicity of financial structures – if you have three properties with three lenders, do you really want to have to negotiate with all of them and pay all the extra fees of three applications to get to your equity? Cross collateralizing means one application to get equity from all properties.

There are benefits to avoiding CC but it comes back to the yin and yang theory. For every positive there will be a negative and vice versa. If you can see one and not the other you are only seeing half of the picture…

Hi Heather,

I think you're referring to a 'fixed and floating charge'.

Examples of fixed assets are; real estate, cars, equipment, machinery etc

Examples of floating assets are; cash at hand, stock, trade debtors etc (move up and down)

A fixed and floating charge (also known as a mortgage debenture) can be registered against a company. It means all of that company’s assets (fixed or floating) form part of the banks security. A fixed charge on a specific asset has priority over a fixed and floating charge registered against the company.

When a company goes in to liquidation; anyone with a FFC will have priority over all unsecured creditors. This is why when big companies go broke their banks get paid before small suppliers.

Some banks register a FFC when they lend to a private company buying real estate. It means the security is the property plus any rent, cash or assets in the company accounts.

Contentious Banker