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Private funding for deposits and costs

Discussion in 'Property Finance' started by dabbler, 3rd Jan, 2017.

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  1. dabbler

    dabbler Well-Known Member

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    Hi All,

    Anyone getting private money for deposits or to finance ?

    Years ago someone I knew was getting private money, but never asked all the detail.

    I am curious as sometimes I get offered things I could buy and flip after a year, but can't buy everything.

    Also if using a regular lender in combination, how are you protecting the interest of the private funder, a deed ? regular lenders will baulk if any notation on title.

    If you do not want to put the info here, feel free to PM.
     
  2. Mortgage Capital Australia

    Mortgage Capital Australia Mortgage Broker & Private Lender Business Member

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    As a private lender we do a lot of deals where on paper a client cannot get traditional financing due to serviceability but has a good exit strategy i.e flip or refinance to a traditional after renovation etc.

    We always record our interest on Title by way of mortgage (first / second) or caveat.

    Approved a deal today for a forum client who owned a property unencumbered but because of other investment loans was unable to borrow anything thru a traditional source. We approved a 1RM for 50% as a cash out loan,

    Some borrowers moan at the rates of interest / application fees Private lenders charge but thankfully there are so many borrowers who realise they still make good money and understand that without finance their investing journey comes to a halt.
     
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  3. dabbler

    dabbler Well-Known Member

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    If there is a regular lender involved, they won't allow this usually, if a caveat was placed they would know and not settle, or if it was after settlement, they may persue those on loan to remove.

    What resi lenders allow this going in ?

    I guess with all the scams etc, it may be a lot harder than decades ago to find people, unless you make them partners, which opens a whole other can of worms.
     
  4. Mortgage Capital Australia

    Mortgage Capital Australia Mortgage Broker & Private Lender Business Member

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    It is standard for a lender to register their interest in the property irrespective of whether the first mortgagee likes it or not.

    The requirements vary from State to State but in all States the Titles office recognise the interest and there is nothing the first mortgagee can do about.

    Traditional lenders also offer 2nd mortgages and so so with a priority agreement.

    A individual cannot lend another individuals money on a regular basis for a coded loan without an Australian Credit Licence and you cannot borrow someone else licence for this purpose.

    Such legislation thankfully stamps out the scams of this world.
     
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  5. dabbler

    dabbler Well-Known Member

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    I know that many lenders do not want 2nd mortgages, other interested parties, caveats etc over the property they have an interest in. This seems pretty obvious to me & logical too, and contract may state your obliged to remove/take action on last contract I read, the way I see it, you could be breaching initial contract, but maybe they ignore this and no penalty, I have not had a third party employ a second mortgage in certain circumstances they may be fine with it, or some lenders less touchy over such things.

    If if the place has a 80 or 90 LVR according to that initial lenders valuation/s, they are not going to just sit there as second mortgage is slapped on or caveats, this would be sounding alarm bells for them, and if it did not, it would for me if I was the lender.

    If the legislation stamped out the scams, why is there so many of them. It is like more legislation will stop crime, but criminals do not care about the law.
     
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  6. Mortgage Capital Australia

    Mortgage Capital Australia Mortgage Broker & Private Lender Business Member

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    In which lenders loan document does it state they don't want a 2nd mortgage to be registered. I have had our Solicitor review the Big 5 Banks and certainly is not in any of these.

    In regards to the lvr point you make. Why would any first mortgagee care if a private lender (for some unbeknown reason) went to an 90% lvr . Their interest is still well protected.

    On a final note i am just interest what scams you refer to in the private lending market.
     
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  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Lenders can't stop a third party from putting a caveat on a property after they have registered the first mortgage. If they haven't registered their interest prior to the caveat, most lenders would refuse to settle.

    My understanding is that a second mortgage generally requires permission from the first mortgagor.
     
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  8. Mortgage Capital Australia

    Mortgage Capital Australia Mortgage Broker & Private Lender Business Member

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    Peter you are bang on.

    No lender can stop a third party registering their interest on the property and if the caveat was registered at settlement on a purchase or refinance they would refuse to settle.

    In Qld your 2nd Mortgage can be registered without the consent of the prior mortgagee.

    NSW & VIC have slightly different requirements and we usually register a caveatable interest prior to the first mortgagee's approval.

    In 23 years never had one not approved. In many cases the major Banks (NAB are the worst) refuse to enter into communication and we just do it.

    Loan is normally repaid by the time the Bank wakes up unless we assign the first mortgage and then be surprised how quickly they respond.
     
  9. dabbler

    dabbler Well-Known Member

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    I was more talking of caveats, but the first mortgage holder is not irrelevant, no matter who they are in my eyes & if you (as in the client) are in breach of contract (with the first mortgage holder), then they can potentially cause a headache, not for you, but for the one under contract maybe. There are far more lenders than just 5 major banks.

    Your post seems to only be thinking of or from your own standpoint and potential situations, as you have missed what I was talking about, I am not sure it even worth carrying on discussing any further.


    The above would mean you put client in breach of initial contract, and then you just go ahead anyway if you can't get a normal business agreement with them.
     
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  10. dabbler

    dabbler Well-Known Member

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    This is my understanding too.

    But I also believe they can peruse those on the loan to remove any caveat, it may depend though.

    They will want to know what the deal is at least I expect.
     
  11. Mortgage Capital Australia

    Mortgage Capital Australia Mortgage Broker & Private Lender Business Member

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    Again just shows you have absolutely no legal knowledge of the mechanics of such. Client certainly would not be in breach of initial contract.
     
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  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Caveats can be removed, but the they will usually be held in place if it can be demonstrated that the caveator (???) has a reasonable interest in the property, which they would in this scenario.
     
  13. dabbler

    dabbler Well-Known Member

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    LOL a bizzare way to act on a forum if your looking for business.


    How you make a statement that client would not be in breach, when you do not have the contract, is beyond me, but shows it is not worth discussing anything further with you.
     
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  14. Mortgage Capital Australia

    Mortgage Capital Australia Mortgage Broker & Private Lender Business Member

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  15. Terry_w

    Terry_w Tax and Structuring Lawyer Business Member

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    Wow what a thread!

    Mortgages can be in 2 forms:
    a) registered or legal mortgages, and
    b) unregistered or equitable mortgages

    Registered ones are recorded on title and unregistered ones are no. An unregistered mortgage can be evidenced by the mortgagee lodging a caveat. A caveat is not a form of security but just notification that someone has an equitable interest in the property such as the mortgage.

    The general rule is that legal takes priority over equitable and first in time takes priority over later in time.

    In some states the first mortgagee must consent to the registration of a subsequent mortgage. The bank's will usually want to deed of priority to be entered into between themselves and the mortgagor and the new mortgagee. This will make sure they the first mortgagees get priority and that there is no dispute - though it may not be necessary.

    The mortgage agreements that I have read generally have a clause in which the mortgagor agrees not to let a caveat to be lodged over title and if one has been lodged they must do what they can to remove it. I am not sure if it is a breach of mortgage to allow someone to lodge in this case and if the bank could call in the loan or not, but in practice the lender would not know unless they did another title search - which they would only do at settlement and on any loan increases or other changes requested which require the title to be produced.

    My understanding is that many loan agreements have a clause in which the mortgagor agrees to not consent to others lodging a caveat on the property and if one is lodge they must do everything in their power to remove it.
     
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  16. dabbler

    dabbler Well-Known Member

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    Going to court is trivial, right.
     
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  17. dabbler

    dabbler Well-Known Member

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    Hi Terry,

    I see I am not alone and others have seen the same requirements or wording in contracts that I have.

    This is what my understanding is too, you must make effort to remove. Am sure your aware that may not be trivial if the applicant refuses - but ignoring that, it also, as your alluding too, would seem you knowingly broke/breached your contract if you knew it was going to happen, let alone initiated it. :eek:

    Would endear you with the lender on next application too no doubt (or maybe they do not care, but I won't find out this way).

    Anyway,

    A deed should allow you to place a caveat if you needed too, or at some later point, or in other words, a/the deed, would be an unregistered mortgage ? A caveat is of no use except to enforce the deed, or rather, prevent sale and loss of proceeds.

    More to the point, do you think people are doing things this way outside of family and friends ?
     
  18. Terry_w

    Terry_w Tax and Structuring Lawyer Business Member

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    Yes second mortgages are very common.
     
  19. albanga

    albanga Well-Known Member

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    For what it's worth I had to get written approval from ANZ to have a caveat of a section 173 placed on title prior to allowing a subdivision.

    It was an absolute headache and it took literally 3 bank staff staring blindly at me before getting to someone senior to know what department to actually send the forms to.

    CBA have since taken the mortgage and had no issues with this. I know this is different to what this post was inititially intended for but thought worth sharing :)
     
  20. Gockie

    Gockie (FB): Peter Thornhill share investing enthusiasts Business Member

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    I'd like to read this thread at a later stage, it might have great advice!
     
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