Can we block a Novation Deed ?

[Patosan]

We inherited a share of a 2nd mortgage on a Sydney property. The 1st mortgagee had called in the loan and had the property up for auction. It was postponed for 3 weeks but now the owner has found a "benefactor" to take over the 1st mortgage, this will be achieved or "assigned" via a Novation Deed.

Our dad's estate executor's solicitor feels this is good as now we can force the sale if a valuation points to a suitable outcome.

Initially I thought this was probably ok ... now I'm trying to spot any potential negative repercussions. e.g.
1. Wouldn't having a benefactor "friendly to owner" be a negative to us ?
2. Could the new 1 st mortgagee make excessive claims in order to squeeze the leftovers going to us, in the event of sale ?
3. Can we block the assignment and force the sale now ?

Any views or war stories welcome.
Have a good one.

 

[NigelW]

Pat

You really need some legal advice.

A key point to identify is whether there's a priority deed between 1st and 2nd mortgagees.


Good luck
N.

 

[Patosan]

A key point to identify is whether there's a priority deed between 1st and 2nd mortgagees.
N.

We have put the questions to solicitors too ... I just like to ask everyone, as you never know what might pop up.
Plus the process of asking here can be educational.

Now I vaguely remember reading something about priority deed.
What does it mean ... simply ?

Have a good one
Patrick

 

[juzz]

We inherited a share of a 2nd mortgage on a Sydney property. The 1st mortgagee had called in the loan and had the property up for auction. It was postponed for 3 weeks but now the owner has found a "benefactor" to take over the 1st mortgage, this will be achieved or "assigned" via a Novation Deed.

Our dad's estate executor's solicitor feels this is good as now we can force the sale if a valuation points to a suitable outcome.

Initially I thought this was probably ok ... now I'm trying to spot any potential negative repercussions. e.g.
1. Wouldn't having a benefactor "friendly to owner" be a negative to us ?
2. Could the new 1 st mortgagee make excessive claims in order to squeeze the leftovers going to us, in the event of sale ?
3. Can we block the assignment and force the sale now ?

Any views or war stories welcome.
Have a good one.

Patosan,

Might be wise to fill us in more on the details.....
1. New 1st mortgagee - What do they want from the deal??(Rates?? Equity??Future Ownership position??)
2. What do you & your family/ beneficiaries want from it?
3. What is currently in place as the 2nd mortgagee?
4. What is the product(Development site?, Tennanted property?)
5. Figures and numbers currently??ie 1st mortgage debt. Current income?
6. What do the current owners want?? & Is it feasable?? What are they offering?? & are there other securities??

This is just a start, the list can go on & on.

But a priority agreement is usually between yourselves(2nd Mortgagee) & the 1st Mortgagee. If the 1st mortgagee can get away without you requesting it
or implimenting it you may reliquish many of your rights.
Priority agreements usually have set out ways in which the 1st mortgagee & 2nd mortgagee may operate & also a priority agreement can cap the 1st mortgagee lending more funds to the borrower.
Its usually best to obtain one but it may be possible to work without it
& it can be a massive negotiation tool.

You must obtain the right advice from your solicitor & relevant advisers as there are many potential downside risks you should cover.

Also, Privacy issues on these things are always important so be carefull.

Juzz

 

[Garry K]

Juzz has covered the Priority Ageement well, and you nead to know where you stand before agreeing to anything.

For instance, the benfactor may have increased the loan amount, and taken the increase in cash, which leaves less equity for you.

Ideally you need an agreement from the 1st Mortgagee that they wont increase their lending. Also that you will be notified if the 1st mortgage gets in arrears, as unpaid interest can also quickly erode your position, when eventually booked.

GarryK

 

[Patosan]

Thanks Juzz and GarryK,

Well before I give you more info I'll update you on the situation.
The benefactor deal on assuming the 1st mortgage has fallen thru, so I believe it's to be put back on the market again. The owner who owes dad's estate 950k plus a heap of penalities offered 440k a month ago, in order that she could keep her property.

She's a character that I'd want full protection against in deals ... I'm not privy to exactly what dad had in place between him and the 1st mortgagee.

Some info on events :
1. The property is the 2nd which dad had a 2nd mortgage with "madam".
2. The 1st, in Melb, was sold and settles in May '06.
3. The property is an ex-church turned into a gallery of some kind. I won't give the name or Sydney suburb.
4. Value should be around 2 mill.
5. The 1st mortgage has blown out to 1.6 mill ... we're trying to find why.
6. I'm not aware of ALL the facts and numbers, dad's wife is the executor.
7. I am suspicious about the level of protection, if any, arranged by his solicitors. Probably no Priority Agreement.

This is only a snippet of what has been dragging out already for 3 years or so, though dad died in July '05. Trying to get money out of this "madam" is not straight forward to say the least. I'll update when more comes to light.

 

[juzz]

Patosan,

Normally, in these sorts of circumstances its best
to have some sort of control of the situation.
Your own consultants, don't rely on anyone elses.

The main risk is that the 1st mortgagee sells out at what the current
market is willing to pay & the selling costs & payout only covers the 1st
mortgage leaving you with nothing.

Normally its best to have a seat at the table & see what options are
available to you. You need to treat it more carefully than the bank does??
You need to know everything....
ie what other securities does the borrower have and is willing to bring into
a new agreement & what other interests does the borrower have??
You need to know now not later...

If you are seen to be helping find a soultion for the borrower you'll find out much more
(On a no liability basis though).....

Also, is it really worth letting the other sale occur?? It may be wiser
to take control of the other one as well.
ie How do you know they hav'nt just sold if for a massive loss to one
of their buddies.

Juzz