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Legal Tip 8: Avoid Cross Collateralising Security Properties

Discussion in 'Legal Issues' started by Terry_w, 26th Jun, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    18th Jun, 2015
    The legal side of avoiding cross collateralising properties

    There are many reasons to avoid cross collateralising properties when borrowing. This involves using 2 or more properties as security for one loan.

    Why avoid? Because the lender will place a mortgage over each property used as security. This means that if the borrower defaults the lender can take either property and sell it to recover their money. The lender is advantaged and the borrower disadvantaged.

    A better way to go would be to borrow deposit elsewhere and to use one property as security. This way if you default for the loan the lender can only immediately take possession of the property which they have a mortgage over. They would then take this property and sell it and only come after other property if there is a shortfall.

    The main point here is that you will gain extra time to sort things out. Perhaps many months too. This could give you a chance to sell other properties you own, on your own terms and/or to raise money other ways to pay any shortfall.

    The advantage with no crossing is that it is safer for the borrower and it will give you much more time to sort things out if you cannot pay the loan or otherwise default.

    For the lending side there are also many advantages and I suggest you read Peter and Jamie's posts in the finance section.
    Last edited: 26th Jun, 2015