/ Hypothetical Property Question

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mypyrex - on 03 Feb 2013
Situation:

A & B are 67 and 70 years old and live together and have 50-50 ownership (no mortgage) of their property, currently worth circa 250k

B has a son C age 40. He has equity of circa 50k and could raise a mortgage of 75k. For various reasons B wishes to move in with A & B. Thus the three of them could potentially purchase property i.r.o 375K but A & B are too old for a mortgage.

Just wondering if all three can have equal shares in a 375k property with C as sole morgagee?
m0unt41n on 03 Feb 2013
In reply to mypyrex: Are you saying that C wants to move in (you wrote B) with A & B into a new house costing 375K financed by a 100% mortgage on A&B's house plus a 75K mortgage C gets? But since A&B cannot get a mortgage then you wanted to know if C could get one for 375K using A&B's house plus 75K based I guess on C's earnings?

So is your real question can C get a mortgage where the security is a house owned by someone else and what are the likely terms and conditions?

mypyrex - on 03 Feb 2013
In reply to m0unt41n:
> (In reply to mypyrex)
>
> So is your real question can C get a mortgage where the security is a house owned by someone else and what are the likely terms and conditions?

Yes, except that all three would move into the 375k proprty with equal ownership.


Rob Exile Ward on 03 Feb 2013
In reply to mypyrex: I think you - ahem, A B & C - would find this difficult, because the mortgage would be compromised by A & B living there, so the lender wouldn't be able to repossess to recover their loan in the event of a default.

Also, as a disinterested outsider, sounds like a classic recipe for a car crash. IMHO.
johncoxmysteriously - on 03 Feb 2013
In reply to Rob Exile Ward:
> (In reply to mypyrex) I think you - ahem, A B & C - would find this difficult, because the mortgage would be compromised by A & B living there, so the lender wouldn't be able to repossess to recover their loan in the event of a default.

Why is it different from a man getting a mortgage when his wife is going to live there? As long as A and B sign disclaimers postponing their interest to that of the mortgagee, there shouldn't be any problem.
>
> Also, as a disinterested outsider, sounds like a classic recipe for a car crash. IMHO.

Families do all sorts of stuff which isn't commercially recommendable. It's true they do sometimes make work for my sort, I guess.

I assumed the OP meant why can't they sell their existing houses, raising equity of 300k, and then C raise a mortgage for 75k and they buy a house together for 375k. I can't see any reason of principle why not.

jcm

Ava Adore - on 03 Feb 2013
In reply to mypyrex:

Oh god, give them fake names!!! I can't cope with alphabetised people...!!!!
Rob Exile Ward on 03 Feb 2013
In reply to johncoxmysteriously: You may be right. I don't think you are. If I lend C 75K I normally do so on the basis that if he stops paying I can repossess his house and get my cash. In the proposed scenario I can't. Andy, are you there? I'm sure you know better than either of us.
BusyLizzie on 03 Feb 2013
In reply to mypyrex: Sounds like a land law exam question, yum yum...

Assuming a willing lender, it's easy; the trick is that legal ownership (the name(s) on the land register) can be different from beneficial ownership (=who gets what when the house is sold). BUT A and B are at risk because the lender can repossess if C defaults. And there is a cost involved because the arrangement can't be done properly without a trust deed, which should be drafted by a solicitor. If A and B are willing then either:

1. the legal title has to be held by C. C becomes sole legal owner (hang on, don't panic, it gets better), and has sole liability for the mortgage. BUT he will have to hold the house on trust so that A, B and C have whatever shares they want (presumably A and B have a third each of the value of the house, whereas C gets a third less whatever is due on the mortage). A and B would need to protect them selves by ensuring that the trust deed stated that C could not sell without their agreement (although of course the lender can).

OR
2. All three buy the house as joint legal owners. Then they mortgage the house; they need a trust deed, exactly is in method 1, because (as set out above) what they want to achieve is not equal thirds of the value of the house-less-mortgage-debt, which is what they will have if they don't set out the precise arrangement they want. I think this arrangement is less likely to be acceptable to a lender because of A and B's age.

Going back to scenario 1, then, if C defaults on the mortgage the lender will sell. Let's assume, because I can only do easy numbers, that the house now sells for 390k, the mortgage debt plus costs of sale are 75k: of the net sale proceeds (315k, after paying mortgage and costs) A and B get 130k each and C gets 55k.

Tell me if I haven't explained that clearly and I will have another go! :-)

BusyLizzie on 03 Feb 2013
In reply to BusyLizzie: Btw, I should also have said that although it is technically easy, it does indeed sound like a recipe for a car crash!
andy - on 03 Feb 2013
In reply to Rob Exile Ward: you'd struggle to get a lender to do it, but someone might as the loan's quite small. As you say the issue is getting a lender comfortable they could repossess if they needed to. The legals would have to be watertight as the courts are so reluctant to grant possession these days.

The other concern would be what happens when A or B pops their clogs or wants their equity - again, this would worry a lender.

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