Cross-Collateral and 'All Money' legislation

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From: Fiona H


Hi, question for the legal beagles amongst us.

I was talking to my broker (filling in forms again!) yesterday and he mentioned that if you have more than one property with a lender, it dont matter if they are not cross-collateralised, if you muck up on one loan, they can take the other property if they want... hence defeating the benefits of NOT cross-collateralising. He said it was covered in something like "All Moneys" legislation.

Comments? More info on this legislation?

We have "serviceability issues" (actually the bank has the issue, not us!) and they are offering us a good deal to get all our properties (3 at present) across from other lenders.

Cheers
Fiona
 
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Reply: 1
From: Felicity W.


I had a legal opinion on this one (I'm only quoting, seek your own legal advice).
"The effect of an all monies clause is that the mortgage over the wrapped land claims to secure any and all money you may later borrow in any form from the mortgagor (bank). "
This in fact raises issues if you are wrapping properties, because when wrapping you are not allowed to mortgage the wrapped property again in any way once you have signed the wrap contract. You can only keep your original mortgage that you used to purchase the property. This all monies clause if you then go and borrow for a second property is in some ways another claim on that property, which is not allowed. Messy stuff really.
Keep smiling
Felicity :cool:
 
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Reply: 2
From: A Jones


Once a judgment has issued against a property owner the bank can obtain a writ of execution against the defaulting borrower (against any property held by the mortgagor). Similarly the bank could obtain a garnishee order against the borrower's wages.

The bank will usually obtain an order for possession of the mortgaged property. But it has the alternatives mentioned above.

It always makes we wonder why credit cards have such high interest rates when lending unsecured monies. If the bank issuing the credit card knows you have equity in property (you may have a mortgage with the bank that issued the credit card)then they could always obtain judgment for the credit card debt then issue the a writ of execution against your property.

Credit card debt is often de-facto secured debt and the banks know this.
 
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Reply: 2.1
From: Duncan M


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I think one of the points to remember is WHY cross-collateralising is not
recommended, its not to secure each of your individual properties from the
banks. It's so that you have 'portable' finance. If you have a star
performer in your portfolio you can take that single property to another
bank for refinancing if your existing lender wont play ball..


Regards,

Duncan

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<TITLE>RE: Cross-Collateral and 'All Money' legislation</TITLE>



I think one of the points to remember is WHY =cross-collateralising is not recommended, its not to secure each of =your individual properties from the banks. It's so that you have ='portable' finance. If you have a star performer in your portfolio you =can take that single property to another bank for refinancing if your =existing lender wont play ball..


Regards,


Duncan




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Reply: 3
From: Rolf Latham


Hi Fiona

Few things

If you are using a broker, doesnt he or she have a pen :eek:)

ALl monies "clauses" depending on the lender can be struck, especially where there is mortgage insurance provided - effectively the lender is protected and does not need an all monies, from an ethical or logical point of view at 80 % even.

The argument your broker uses is one that is commonly touted by banks to that you still go down the xcoll route. While he/she is technically correct, if you have them xcolled the chance of you refinancing one of them quickly if you get into the poo is minimal, because the incumbent lender wont let it go in a hurry.

Its all about minimising risk at the end of the day. We dont intend to go and crash our cars, but we take insurance anyway.

This is also one of the reasons why you should spread your business. Ultimately, if youre finances go to custard they will get you anyway - but all these strategies buy time. Time, good legal adivce, and a cool head are your most vital asset in a cashflow crisis.

Ta



Rolf
Rolf
 
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Reply: 2.2
From: A Jones


To avoid confusion in my statement "Once a judgment has issued against a property owner the bank can obtain a writ of execution against the defaulting borrower (against any property held by the mortgagor)", the word "property owner" could have been used instead of the word "mortgagor".

The bank is of course a mortgagee.
 
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