Loan Tip: Changing Legal Ownership of Property and Loans

Changing the legal ownership of a property will generally require new loans to be applied for where the security of the loan is the property in which ownership is changing. This is because the property is being used as security which means a mortgage is given by the owners of the property. If the ownership is changing the mortgagors will also be changing and this means the loan will need to change.


Example

Bart, Lisa and Maggie own 1/3 share each of 123 Smith Street.

They borrowed $300,000 to buy this property several years ago – interest only. It is now worth $600,000.

Now Maggie wants out, as she is moving to Saudi Arabia to teach dissection in the Anatomy department of a major university.

Bart and Lisa will buy out Maggie’s share and become 50/50 owners.

Previous the borrowers were the 3 of them, the mortgagors were the 3 of them and the security was the 123 Smith Street.

Changing the title will need the mortgagee’s consent – the lender. They will need to discharge the mortgage and lodge a new mortgage given by Lisa and Bart as the remaining owners.

Because the borrowers will change a new loan application is also needed – Lisa and Bart will need to demonstrate ability to pass the servicing calculations without Maggie.

 

What happens if the structrure Trust, the change of directors or beneficaries need a new loan? The loan is setled a while. Trustee A (director A pty ltd) for TRUST A. Director A resigned and Director B is now for A Pty ltd?
Thanks

 

The contract that the bank enters with the company will likely have a clause that directors can only be changed with the consent of the mortgagee - the bank.

Also need to consider personal guarantees. These would continue even if resign as director

 

Hi Terry,

if its like dat, director A cant apply for other loan as well? As he still declares he is libable for the trust A Debt?
Thanks

 

He can still apply. But if the guarantee is afoot most lenders will treat it as if it is his personal debt

 

I believe some Banks ignore personal guarantees. Westpac comes to mind.