$15K arrears, property in trust, bank knocking at the door.....

[Kath Russell]

Hi there

I have another friend in need. I suggested asking "you" for help. Any creative suggestions for this (taken straight from her email) :

"3x2x2 duplex unit in Hervey Bay

Arrears of $15k, bank have given them a 2 week deadline to clear or they will take possession.

The property held in a trust.

Query: can the beneficiaries of the trust be transferred & a new purchaser come in with $20k to cover the arrears & legal’s to transfer the trust beneficiary? Thus vendor finance will take place with the new owner having purchased a property for the $20k & maintaining the mortgage thereafter?"

That suggestion seems too easy to me. Possible? Thoughts?

Thank you very much.

 

[Aaron_C]

The problem is you won't be able to transfer the title to the new purchaser unless the bank's debt is cleared. This is both the arrears and the mortgage outstanding on the property. This means the new purchaser has to get finance to fund the purchase or you make a vendor finance arrangement where the original trust remains on title with the bank still there as mortgagee, and the new purchaser makes mortgage payments on the trust's behalf in order to obtain an equitable interest in the property.

 

[Lofty]

Hi Kath

We run into situations like this about 3 to 4 times a year. We usually take control of the property and the mortgage with legal paperwork we've designed specifically for this job. We've been assuming/taking control of properties and mortgages in this fashion since 2005.

My contact details are below.

Cheers, Paul

 

[Kath Russell]

Thanks Aaron.

Forgot to mention :

There's a Corporate Trustee with 1 Director & 2 personal guarantors.

 

[Kath Russell]

Thanks also to you Paul. Very grateful for the Somersoft community.

I'll pass all this information on.

Thanks

 

[Terry_w]

You cannot change the beneficiaries of the trust without a resettlement = stamp duty and CGT event.

They could transfer control of the trustee by transferring shares and directorships. But the new controller may not be able to become a beneficiary of the trust - this will depend on how the deed is worded and their relationship to the outgoing controllers. Appointor would also need to be changed. But any changes to the trustee and appointor would also be a breach of the loan agreement, probably, and this would also give the lender grounds to call the loan in and make the new people reapply.

Best thing for them to do, while working on a solution, is to keep talking to the bank. Banks get worried when there is no communication and start proceedings quicker. Is the place tenanted?

It may be that any possession order can only commence once the tenants have been given notice to vacate. This may be about 30 days. During this time they can place the property on the market and attempt to sell. If it goes to court they can ask for a stay of proceedings based on this fact that they are attempting to sell. This can delay things for months.

Contact Lofty and see what he can do. I would be very worried about going into a deal like this, but I guess this is how you get bargains.

Do the guarantors have other personal assets which could be at risk?

 

[Kath Russell]

Guarantors personal assets :
-house
-guarantee on some business contracts

 

[Terry_w]

They have a problem then. Much equity in the house?

Although only $15,000 in arrears now the banks legal bills will quickly mount. For instance in NSW court filing fees in the supreme court for a corporate trustee matter would be about $2500. Solicitor costs for filing are about $1,500. Interest is around 7% pa from the date of the arrears to the date of judgment. Every time it goes to court there will be bank solicitor costs. Costs to serve documents, costs for their lawyers etc.

Once the bank takes possession and sells there will be heaps more costs such as valuation fees, agent fees, extra legal fees and they will probably sell at what would be considered under market value (by your friends). Possibly $100,000 all up.

They have to try and avoid court at all costs. If they get a judgment against them this could lead to the seizure of their house and possibly bankruptcy. The guarantees giving on the business will also be voided and that lender will require new ones. Is this for their own business or an employer?

This is why it is best never to have more than 1 director of a company. Actually you don't say, were the guarantees given by husband/wife or just one of them? Whose name is the home in?

 

[Lofty]

Hi Kath

As always Terry is spot on ;-) Our aim is to get the mortgage back into 'good standing' asap. Then, keeping the monthly loan payments regular keeps the lender reasonably happy.

The urgency here is to get the loan back into good standing before the lender 'goes legal', i.e. instructs their lawyers to start the application process for a Writ of Possession. With some lenders, once their lawyers have been instructed it can be almost impossible to the lender to stop the court process.

You need to speak to the lender's Collections Dept asap as, they too, all have varying policies.

Cheers, Paul

 

[Kath Russell]

Thank you

Thanks everyone for your experienced comments & assistance.

I have forwarded the information on to my friend who is grateful for your responses.

Cheers