Correct Finance Structure for HDT

[apapworth]

We recently set up a HDT and have now signed to purchase a new property to owned under it.

I have received approval from a lender, but our accountant is suggesting that the lender is structuring the documentation incorrectly.

The HDT has a company as trustee of which I am the sole director, and the lender is wanting Me to be the borrower, the company to be the owner (both agree on this) but they want me also to be the guarantor.

The accountant is saying this is incorrect, and lender is saying that no one would lend under this structure as I would have no financial interest in the property.

Any advice on what is correct?
Thanks

 

[alexlee]

The guarantee thing sounds right. Why else would a bank lend to a trust structure that has no other assets?
Alex

 

[JIT]

I believe the company should be guarantor, but you sign it, ie. use your name, but 'as Director for the Company X'.

 

[grossreal]

hi apapworth
the lender is right
the reason is very simple
the trust and the company are not classed as living entities and lender require that the loan is to a living entity.
you can have a company and a trust structure but the company must have a director and that person is the person that is guarentee for the loan.
you cant lend to a company and a trust without having some one that is the managing director and as such I don't know of any lender that will lend say 5 dollars to a 2 dollar company with out any living person on the paperwork even doing 50% lvr lending or no doc.
what does confuse me a little is that your accountant thinks they would.
he must not have done very much lending paperwork or gone to uni as this is one of the first year parts of there coarse and that for me would be a bit more of a concern to me.
it not an issue for a company or a trust( what ever form) its just general lending principle.
if you were to lend money to me you would want to know that I am a living person not a 2 dollar piece of paper with another 2 dollar piece of paper behind that and no one to guarentee the money you give me.
not hard to work out there rational.

 

[apapworth]

hi apapworth
the lender is right
the reason is very simple
the trust and the company are not classed as living entities and lender require that the loan is to a living entity.
you can have a company and a trust structure but the company must have a director and that person is the person that is guarentee for the loan.
you cant lend to a company and a trust without having some one that is the managing director and as such I don't know of any lender that will lend say 5 dollars to a 2 dollar company with out any living person on the paperwork even doing 50% lvr lending or no doc.
what does confuse me a little is that your accountant thinks they would.
he must not have done very much lending paperwork or gone to uni as this is one of the first year parts of there coarse and that for me would be a bit more of a concern to me.
it not an issue for a company or a trust( what ever form) its just general lending principle.
if you were to lend money to me you would want to know that I am a living person not a 2 dollar piece of paper with another 2 dollar piece of paper behind that and no one to guarentee the money you give me.
not hard to work out there rational.

This makes sense to me too... I will have to check that there hasn't been a miscommunication between the lender and accountant as this doesn't sound right.

Thanks,
Adam

 

[Cozican]

If I am understanding your original structure.

Borrower: You
Property Owner: ABC Pty Ltd ATFT ABC HDT

Assuming that "You" are borrowing the money and the "ABC HDT" owns the property, ABC Pty Ltd ATFT ABC HDT would provide a guarantee back to you. This would link the security back to the borrowing entity. It would be no different to Mr A borrowing and Mr B owning the property. Mr B would provide a guarantee back to Mr A.

I would'nt see the need for the personal guarantee, after all, how can you guarantee yourself?

 

[Rolf Latham]

Hiya

i suspect the gaurantee of "me" is a guarantor from the co ?

If you are borrowing in personal names, they wont need a guarantee from you, but the controlling entity that being the trustee

ta
rolf

 

[Pat]

Cozican and Rolf,

Spot on the trustee atf the trust provides the guarantee as it holds the security for the loan taken out in the personal name

 

[apapworth]

Hiya

i suspect the gaurantee of "me" is a guarantor from the co ?

If you are borrowing in personal names, they wont need a guarantee from you, but the controlling entity that being the trustee

ta
rolf

Yes, I am the borrower and also the director of the Trustee company that will own the property.

Are you saying they shouldn't have to have my personal name on the title at all?

 

[apapworth]

Cozican and Rolf,

Spot on the trustee atf the trust provides the guarantee as it holds the security for the loan taken out in the personal name

Hi Pat nice to hear from you ;-)

So just to clarify what you are saying, the trustee (the P/L company) holds the security, so therefore should not require a personal name on the title!

I don't have a problem with this at al,l but Im being told by the lender, and a broker who has asked 3 of the big banks that it has to have my personal name on the title as guarantor.

 

[nomadic]

I don't have a problem with this at al,l but Im being told by the lender, and a broker who has asked 3 of the big banks that it has to have my personal name on the title as guarantor.

as Rolf said, i think the reason they want 'your' name as guarantor is because 'your' name is also listed as the director of the trustee Pty Ltd... which is the controlling entity of the security / property.

Hmmm, in effect, it sounds like you are providing guarantees for yourself through 2 different entities... i dunno either!

 

[apapworth]

Update:
It has been clarified by our accountant that the guarantor is irrelevant, as long as the borrowing is in my personal name, and the property ownership is in the company name. This is what I understood from the start, but the lender and broker is saying that mainstream lenders wont do this... and I quote:

"These are your only options:

1. [Company Name] is the purchaser as well as the borrower of mortgage, YOU are the guarantor of the mortgage and not on the property title. – So the investment property got protected.

2.YOU are the borrower of the mortgage as well as purchaser for the property, therefore YOU and [Company Name] are both on the property title. – So you can claim personal investment loss at the end of financial year."​

Does this sound right to any of you?

Just so you know, they have accepted that the original approval was incorrect and for this they are sorry and have refunded my valuation fee.

 

[Peter_Tersteeg]

Given that the trustee company owns the property, the directors of the trustee company will be required to provide a guarantee. You should also expect the have to visit a solicitor to get legal advice as guarantee.

This is kind of stupid as in most cases the directors and applicants are the same persons, but it's a fact of life.

The loan should be in personal names.