Caveat on properties

[GreenTreeFrog]

There is an urgent situation where a purchaser is trying to secure finance but has a problem with a caveat over two of the properties properties, that have no mortgage on them.

The details are:

2 x 2 bedroom apartments in Adelaide locked into a 10yr lease arrangement with Breakfree Holidays - these currently do not have any mortgage over them, value: $150k each.

4 bedroom property in Warriewood - is currently held as a security of both these apartments, value: $1.2m

3 bedroom property in Woodbine - no mortgage, partly used as security on one of the Adelaide apartment, value: $300k

The plan:

Extract Warriewood from the cross collateral situation using both Woodbine and the apartments themselves as security for the apartments, thereby freeing up Warriewood.

Then the Warriewood and the new property can be used as security on the new finance deal.

The problem:

Breakfree has a caveat on the apartments cause they hold a management lease on the apartments. CBA wants to add their own caveat on the apartments because they will now have a mortgage over them. CBA wants their caveat to be the primary one which requires Breakfree to accept that. Breakfree so far haven't accepted that.

Has anyone ever been in this situation? Or know of this situation and how it was resolved?

It is at a bit of a stalemate with settlement date in three weeks! So any advice greatly appreciated!

Thanks!

 

[Mick C]

Hi,

caveat are a major headace...because it involves a lot of legal issues and i can tell you now CBA and breakfree will NOT give in...there is no benefit for breakfree to give primary security to CBA + they have the legal right in the first place.

It sounds like you guys are short on deposit? or wanting to avoid LMI? Because their may be another way around this..rather then going down the caveat path.

Regards
Michael

 

[GreenTreeFrog]

It is a 100% borrow. Wanted to avoid selling the Warriewood property which has the same value as the purchase price of the new property.

So not concerned about LMI.

 

[Bradsdad]

Yes CBA will want to have 1st dibs. Best to ensure CBA have written off to Breakfree instead of sitting on their backsides. I don't see why they wouldn't agree as it appears they only want to ensure the lease stays in place not about calling in on the property.

A question that comes to mind though is were the CBA away of the property use and the restrictions it carried when finance was originally approved? You can bet their bottom dollar they do now and that may impact on current LVR's.

 

[Mick C]

It is a 100% borrow. Wanted to avoid selling the Warriewood property which has the same value as the purchase price of the new property.

So not concerned about LMI.

Ok probably need a bit more details on the whole financial transaction...But.
1. how much deposit do you have? and if you use your full deposit after paying off stamp duty etc...whats the LVR???
2. Is the new purchase a standard unit? or is it a service apartment as well and whats the postcode?

Also just to clarify,
Warriewood is used as security for both the apartment and Woodbine ??? so you want to remove Warriewood from this cross...and use Warriewood as the 2nd security for the new purchase?? Correct?

Regards
Michael

 

[GreenTreeFrog]

1. I will have confirm this one but I think deposit is the 10% and going for 100% including stamp duty and LMI.
2. Rural acreage in 2765. Land release area up for subdivision sometime in the next few years, potentially to be zoned medium-density. Currently tenanted at $600pw.

 

[Mick C]

ok im a bit confused now...
so the buyer has 10% deposit, but going for a 100% LVR lending ( stamp duty etc ) + they will be cross securitizing a 1.2m property and LMI is still payable, then whats the point of crossing + what happened to the 10% deposit??

I believe there is a much simpler solution to this problem...

Also reading the post again, you mentioned settlement is in 3 weeks time

Regards
Michael

 

[GreenTreeFrog]

I will have to clarify the 1st question regarding deposit and LVR. It is not my property deal. I think the deposit has come from a LOC against Warriewood.

They want to borrow the entire amount for the new property against the new property using Warriewood as added security. Need to free up Warriewood which is currently over two Adelaide apartments.

Yep settlement mid July! Scary huh! This person is losing a LOT of sleeeeep!

 

[Rolf Latham]

Im not being helpful here, but another classi case if borrower giving body parts to a lender and then expecting them back when the lender doesnt want to.

Id be looking for a new buyer in parallel, coz this mess might not get sorted as fast we would all like

ta
rolf

 

[GreenTreeFrog]

The $110k deposit was borrowed against Warriewood which has no other borrowings against it, but is over the two Adelaide apartments, that also have no mortgage over them.

The goal is to borrow 100% for the new deal including all costs, repaying the LOC against Warriewood.

Today's plan is to go back to CBA and ask if they will do the deal without Warriewood being extracted from the cross coll with the Adelaide properties.

 

[Terryw]

The $110k deposit was borrowed against Warriewood which has no other borrowings against it, but is over the two Adelaide apartments, that also have no mortgage over them.

This is confusing (to me anyway).

 

[Mick C]

This is confusing (to me anyway).

ahha dw Terry im a bit confused as well...it sounds like all 3 property doesn't have any mortgage over them...but it's crossed still; and the loan amount is $110k in total?

Regards
Michael

 

[GreenTreeFrog]

Yep! See, not so confusing.

 

[Terryw]

How can a property not have a mortgage, but be used as security?

 

[Terryw]

Going on this:

2 x 2 bedroom apartments in Adelaide locked into a 10yr lease arrangement with Breakfree Holidays - these currently do not have any mortgage over them, value: $150k each.

4 bedroom property in Warriewood - is currently held as a security of both these apartments, value: $1.2m

3 bedroom property in Woodbine - no mortgage, partly used as security on one of the Adelaide apartment, value: $300k

It sounds like this:

Adelaide Units: Value $300,000. No Mortgage. Caveat

Warriewood: Mortgaged to the value of $300,000 (or less) which was used to purchase the Adelaide Units. LVR $300k/$1200k = 40%. If the Adelaide units have no mortgage then this is probably a LOC which was used to buy Adelaide.

Woodbine: No mortgage, but also used as security!

Maybe 'no mortgage' for GTF doesn't mean unencumbered.

GTF, you also say CBA want a caveat over Adelaide because they will have a mortgage. This doesn't make sense either. CBA doing caveat lends?

A mortgage is different to a caveat. A mortgage is a charge on the land with rights in favour of the mortgagee to take possession if you default on the agreement.

A caveat is just a notice that the lodger has in it.

 

[the helix]

GTF, you also say CBA want a caveat over Adelaide because they will have a mortgage. This doesn't make sense either. CBA doing caveat lends?

Perhaps the OP has signed loan agreement, etc.. but has been unable to register their Mortgage? (unsigned or problem with Mortgage paperwork.. ?)

Wouldn't this entitle the CBA to an equitable interest as mortgagee?

 

[Terryw]

Perhaps the OP has signed loan agreement, etc.. but has been unable to register their Mortgage? (unsigned or problem with Mortgage paperwork.. ?)

Wouldn't this entitle the CBA to an equitable interest as mortgagee?

CBA doing unregistered mortgages? I don't think so.

But this would entitle them to lodge a caveat.