Disclosure of liabilities/loans

Hi Folks,

Question for the brokers out there.
At what point should you be disclosing loans/liabilities on a mortgage application?

As an example, let's say you buy three properties within the space of a month.

Property A settles in 6 months.
Property B settles in 9 months.
Property C settles in 12 months.

Assume that each property is worth 1 million and you've signed a contract on all of them and paid a 5% deposit.

If the properties haven't settled, technically speaking are you obliged to be disclosing them or not?

I guess what I'm trying to work out is, if you're borrowing capacity is 1 million - can you borrow 3 million by not disclosing the purchases you have in the pipeline? e.g. 1 million with each lender.

I understand that non-disclosure is against the rules... but if the properties haven't settled and the titles are not in your name... is it actually non disclosure?

 

IANAL (or broker) but I expect your will find you are required to disclose previous contractual commitments at the time of signing later contracts.

Eg Sign A first, need to disclose A when signing B etc.

 

I guess that's the part I'm trying to work out.

Typically when you fill out the mortgage application - you're listing assets and liabilities to work out your borrowing capacity/serviceability.

I would argue that a signed contract isn't a liability until it's actually settled?

 

The banks will see any previous applications on your credit file, there's no point in not disclosing previous applications, even if they haven't settled yet, or even if you haven't yet signed the loan offer contracts - the banks will find out about them.

If they're not in your name, then you're probably guaranteeing them to another entity, such as a trust? The loans still need to be disclosed as you're legally liable for them. They'll also appear on your credit report so again non-disclosure is pointless.

Make all the arguments you want, the banks don't care and they don't have to give you the money. Credit assessors don't get paid their bonus on the number of applications they approve or decline. I suspect they get paid incentives based on how quickly the move through applications and the accuracy of their decisions (files also get randomly reviewed well after the settlement). If a credit assessor smells a rat, they'll quickly decline the application and move onto the next one.

Lenders will often contact brokers and ask about any credit enquiries within the last year or two if they're not reflected in the liabilities section. Perhaps it's a pre-approval that didn't proceed. This also needs to be explained.

Don't try work this stuff out for yourself. If you're trying to be creative, you'll only dig a hole for yourself. People would be amazed at the various systems in place to detect fraud. Get a professional to do it who can help you navigate through the system rather than try sneak around it.

 

You disclose debts. If you haven't borrowed yet you have no debt. But if you have signed a loan contract then you are legally bound and will have a debt at that point.

 

Thanks Peter - that was exactly the type of response I was hoping to get.

 

I'm pretty sure you'd need to disclose the potential for debt even if you hadn't signed anything. If not in the a and l, perhaps the covering notes but certainly in the question abut future circumstances.

I've had this a couple of times lately with otp purchases that are yet to settle. Assessor needed me to cover off on the future liability. The client in fact had the otp on the market, but I still had to service the potential debt.

 

Legally there would be no need to declare. But the borrower would want to make sure they could still service to settle on any contracted purchases.

How do the assessor find out there was an off the plan property?

 

People do sign a privacy agreement that states they don't anticipate any future changes to their financial circumstances. I'm fairly certain this is a legal declaration.

I'm not arguing that an OTP purchase in 2 years time needs to be disclosed, this is a grey area, but any applications currently in progress definitely need to be disclosed.

But again the legal argument is irrelevant. If the lender figures it out and decides they don't want to give you the money, they don't have to.

 

Yes that is a good point Peter. If the lender asks if youexpect your financial sitation to change in the near future you might need to declare this.

 

Sorry Tobe. You were right

 

There are things that are open to interpretation. With a settlement due in 12 months I may not disclose it because I don't have the concrete loan amount yet or rental income. The client may sell a property in the interim. They may get promoted / change jobs etc. What I would certainly do is make sure it was likely going to service at that future time based on best assumptions now so as to not put my client in a position where they couldn't settle!!

 

That's interesting Marty.
The more digging I do... the more areas I find that are open to interpretation.

 

Rules and regulations are never set in stone, it's always open to interpretation. It's part of playing the game and that's how billionaires and billionaires They play it the best!