2nd mortgage asset protection

Hi All,

Can second mortgage be used for asset protection have an indefinite and interest free loan agreement. This way there's no tax income etc or maintenance and it's just there for asset protection.

Usually it's setup in a trust controlled by yourself, what if it's controlled by a family member instead, would this make the asset more secure and not subject to 'clawback' periods.

 

Yes, but a loan with no transactions becomes unenforceable after 6 years or so - generally.
Clawback periods don't apply to loans, but to gifts. How is the trust getting the money to lend?

 

What would the property owner be 'getting' for the second mortgage?

 

Example (not real numbers) I put in $200,000 into trust. A family member puts in $200,000 into trust. Can be gifted. The trust lends $400k as second mortgage to a $1mil PPOR which has $600k first mortgage to cover the gap in asset protection.

 

clawback periods will apply

Legal Tip 2: Asset Protection and clawback provisions https://propertychat.com.au/community/threads/legal-tip-2-asset-protection.224/

 

So now the trust has $400,000 in cash assets as a result of that loan. Seems to me that this would be much easier to sue for. I suspect there's better ways to acheive asset protection than borrowing more money.

 

Any recommendations

 

And what does the property owner do with the 400k? That would be part of their assets available to creditors?

 

A second mortgage isnt a asset protection device. It is a security mechanism limited to use when a LENDER seeks security over property in exchange for advancinga new loan. ie Is there a new debt ? Without a new loan and debt the mortgage isnt enforceable and is a fiction. The fact there is no repayment may also means its statute barred and is struck. Any action against anyone with a non-bank mortgage will want to explore it for its validity.

The first mortagee will probably not consent to a second mortgage in the example given. Why would they ?

 

It lends it back as a second mortgage against the asset

 

What asset protection method would you recommend against PPOR that maintains CGT exemption.

 

You would then have $400k cash presumably. Which would match your debt.

 

What if family member puts in 400k to trust they control. Lends 400k interest free to house loan you have. Is this protected if someone comes after you. But then exposed if someone comes after them.

 

You then have $400k cash in your hands. What will you do with this?

They also have to consider the clawback provisions.

So now you have 2 extra asset protection risks.

 

The 400k is used in the purchase of the house. Transferred out of trust at settlement

 

Then it would be an asset available to creditors.

 

Sounds like using a second mortgage cannot offer asset protection against creditors if asset is in individual's personal name.

 

I disagree.

see
Legal Tip 115: The Gift and Borrow Back Strategy, Part 1 https://propertychat.com.au/community/threads/legal-tip-115-the-gift-and-borrow-back-strategy-part-1.7544/