Mortgage vs Caveat

[Rockstar]

I have had no experience with caveats before.

I have a friend who is willing to lend me money. Is he secured well enough with a caveat against a property? I have about 400k equity in a property which is currently mortgaged with St George. They won't allow a 2nd mortgage.

He is willing to lend me up to 200k but wants the loan secured by more than a simple loan agreement. The property value is 950k and the bank loan is 555k. If he lent me the 200k my total LVR would still be less than 80%. He has advised me that he doesn't want to lend me more than 80% LVR.

Thanks, RS

 

[Rolf Latham]

Hi Rockster

My recollection is that in NSW a first mortgagee cant refuse a second mortgage.

A caveat is not an "actionable instrument. It prevents further dealings on the title, thats all.

If u go half belly up and the first mortgagee still gets their payments, then they have no reason to force a sale.

ta
rolf

 

[Rockstar]

Hi Rolf,

I have an email from my broker which states

Unfortunately neither St George nor BankWest will allow a 2nd mortgage on a low doc loan.

And they won’t be a 2nd mortgagee behind someone else.

A caveat and a private loan agreement is really the only way you can go.

A caveat is not an "actionable instrument. It prevents further dealings on the title, thats all.

Well I guess the private loan contract is the agreement and the caveat is in place to secure the loan in a sense?

I just want him well protected if we die so he can get his money out.

 

[Rolf Latham]

Hi Rocky

I suspect that this is the banks standard legal answer, id speak with a NSW based solicitor.

I suspect they can refuse a deed of prio, but not the reg of a second or further mortgage

ta
rolf

 

[Rockstar]

Thanks Rolf, am getting some legal advice. Will let you know the result.

 

[RPI]

I am not in NSW but also my understanding is that they cannot refuse a second mortgage.

Specific part of legislation:
Restrictions on mortgage of future property

A provision in a mortgage to the effect that the mortgagor creates or agrees to create a mortgage over future property will be void (s 41(1)) except in the circumstances set out below.

The restriction on mortgaging future property does not apply:

* (i)
if the future property is about to be bought wholly or partly with the credit provided under the initial credit contract ( s 41(2)(a) );
* (ii)
where the future property is described or identified in the mortgage ( s 41(2)(b) );
* (iii)
to goods which replace mortgaged goods or are additions or accessories to the mortgaged goods (for example, if a roof rack is later fixed on a mortgaged car, the mortgage can then attach to the roof rack) ( s 41(2)(d) ); or
* (iv)
to any other provisions specified by the regulations — none has yet been specified ( s 41(2)(c) ).

BUT NSW is not my area so I only had a quick glance.

Attached are a couple of precedents, these should give you an idea of the type of documents that you could use.

Again this is for education only, not advice, nor do I warrant the documents as correct, effective or legally sound.

RPI

 

[jrc]

Future property is nothing to do with second mortgages. Future property is property the mortgagor might acquire in the future.

I would see no reason in NSW why a first mortgagee couldn't refuse a second mortgage.

You should look at the terms of your loan to see whether you are prohibited from doing something without your first mortgagee's consent which charges the land eg a caveat is an equitable charge

 

[Rockstar]

What's the difference between Memorandum, Annexure, and Home loan contract?

Thanks RPI and JRC,

on another note - What's the difference between Memorandum, Annexure, and Home loan contract? Just wondering if these are all similar or specifically different after seeing them used in association with mortgage documents? On a mortgage (nsw) in part D there is option to list an Annexure and a Memorandum No. Are these an essential part of every property mortgage?

 

[Rolf Latham]

I would see no reason in NSW why a first mortgagee couldn't refuse a second mortgage.

I might be able to. Where a contract has been entered into and agreed, and its not in a position to comply with the state's or Commonwealth laws, that portion of the contract may not be valid.

Most standard memoranda of mortgage I have heard are all over the shop.

Lets see what the legal advice comes back with.

I have been through this a couple of times before and its not as clear as the lenders would like to hope.

ta

rolf

 

[MikeF]

Obtaining Ist Mortgagee Consent

This is an area that you need to be very careful about.

My understanding is that a mortgagee can not legally stop a borrower executing a subsequent mortgage however most mortgage documents and memorandum have wording to the effect that if a mortgagor creates a subsequent mortgage without the prior mortgagees consent then they are deemed to be in default.

I think you will find that the St George mortgage provisions document says;

"You must get our consent before you; ......create another security in connection with the property, or allow one to arise or continue"

If the 1st mortgagee finds out it is then legally able to then commence taking whatever action it sees fit including serving demand for repayment of their debt in full.

 

[Ausprop]

I dont understand why they have such an issue - if they have 1st mortgage why do they care who sits behind them? it creates great problems with dev companies because lending without a mortgage sees you lining up with all the other unsecured stooges

 

[tarek85]

I have had no experience with caveats before.

I have a friend who is willing to lend me money. Is he secured well enough with a caveat against a property? I have about 400k equity in a property which is currently mortgaged with St George. They won't allow a 2nd mortgage.

He is willing to lend me up to 200k but wants the loan secured by more than a simple loan agreement. The property value is 950k and the bank loan is 555k. If he lent me the 200k my total LVR would still be less than 80%. He has advised me that he doesn't want to lend me more than 80% LVR.

Thanks, RS

Short answer - no.

He still needs to "prove" his interest in the property. This can be made by way of loan agreement which refers to that caveat - but even then, won't give him the protection he needs as it isn't registered on title.

Also, you have to be careful not to breach your mortgage agreement with the bank by having such an agreement.

A caveator needs to challenge his interest in the Supreme Court if there is a dispute. That can be COSTLY.

 

[Terryw]

A caveat is not a form of security. It is just a notice to everyone out there that you have an interest in the property. It can also prevent further dealings in the property - no further transfers, mortgages etc can be registered. A caveat can also assist in determining priorities. A registered caveat may give prioity over later unregistered interests.

A mortgage on the other hand is a form of security. It can allow the repossession of the property to satisfy breach of the loan agreement for example.

 

[wylie]

I just want him well protected if we die so he can get his money out.

Apart from everything else you need to protect against, wouldn't this be the easiest part. Couldn't you draw a new will with provision for whatever is owing to "XXX" in relation to "loan XXX" to come from your estate?

 

[Terryw]

Apart from everything else you need to protect against, wouldn't this be the easiest part. Couldn't you draw a new will with provision for whatever is owing to "XXX" in relation to "loan XXX" to come from your estate?

Hi Wylie

But what if there was not enough money in the estate - or there were other creditors and not enough money to go around. With a mortgage this would give priority over the others (over the secured asset).

Also wills can be changed and challenged and even invalid (or disappear!). It is no security to the lender for this reason.

 

[wylie]

Hi Wylie

But what if there was not enough money in the estate - or there were other creditors and not enough money to go around. With a mortgage this would give priority over the others (over the secured asset).

Also wills can be changed and challenged and even invalid (or disappear!). It is no security to the lender for this reason.

Good points. I know about wills and problems .

 

[Piston Broke]

All you can really do is give a personal guarantee with a tight loan agreement which may give you priority over some other creditors.

 

[Terryw]

All you can really do is give a personal guarantee with a tight loan agreement which may give you priority over some other creditors.

This would unlikely give any priority. All unsecured creditors are generally lumped together.

 

[Spectre]

I just want him well protected if we die so he can get his money out.

why not set up a life insurance policy for him as the beneficiary then?

 

[tarek85]

Wills cannot be "remade" - but the Supreme Court's Probate jurisdiction has powers in this regard.