Selling with Loans crossed

Discussion in 'Loans & Mortgage Brokers' started by dan2101, 29th Nov, 2016.

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  1. dan2101

    dan2101 Well-Known Member

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    Hi guys,

    I'm thinking about selling a property (probably at a small loss) as its dead weight. Problem is it is crossed with another of my properties. So I was after advice regarding what will happen. The figures are:

    Total loans for both houses: $438k

    Initial loan on the property I will keep was $148k

    Initial loan on the property I will sell was $290k

    I'm anticipating selling for approx $260k.

    The remaining property I'll keep is valued at approximately $270k.

    So if I sell for $260k and the remaining loan is then $178k do I simply walk away and the bank is happy as the LVR is still below 80%?

    I'm confused.

    Thanks!
     
  2. D.T.

    D.T. Specialist Property Manager Business Member

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    They need to revalue other properties involved and they'll expect to receive enough of your proceeds to bring overall LVR to the agreed level.

    It makes the process take longer, don't expect to settle quickly.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    It's fine.

    If there's a remaining outstanding debt after the sale of the first property, they'll secure it against the remaining property.

    It would be worth getting your broker to order the valuations before you sell to get an idea of what it will look like, and to submit with the discharge form otherwise it can cause a few delays. But should not be excessive if they're on the ball.
     
  4. Ross Forrester

    Ross Forrester Well-Known Member

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    If your loans are crossed you almost always need to ask your bank what you can do. It is like a parent child relationship.

    Getting a smart cookie on board to untangle guarantees and crosses can be helpful. It is not just the lowest rate.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  6. dan2101

    dan2101 Well-Known Member

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    Doesn't sound too bad. It was crossed by a broker who was early on in this career. He now admits it was a mistake but we were both newbies so all good. Minimal damage done!

    Thanks for the advice

    Dan
     
  7. Marg4000

    Marg4000 Well-Known Member

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    Can you negotiate to uncross the loans now?

    That way selling will be much simpler.
    Marg
     
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  8. dan2101

    dan2101 Well-Known Member

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    Hi Marg,

    I thought that if I uncrossed the loans id get stung with LMI as the property has dropped in value and therefore loan would be in LMI territory?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If the other has enough equity this could be avoided.
     
  10. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    We see it from time to time. Usually it's a delayed settlement as the vendors bank has to revalue other properties to ensure there's still enough equity to support the rest of the portfolio.

    Generally property markets tend to go up, so I've never had it turn out really badly due to negative equity. It just causes a delay.

    What does worry me is if there's some residual debt after the sale. Can the vendor still service that debt without the properties rental income? 18 months ago this probably wouldn't be a problem, but today it could cause serious issues as lenders have made substantial changes to their servicing calculators.

    As an example, a fortnight ago we analysed a client as having the ability to borrow an extra $550k from the NAB. Today using the same figures but NABs new calculators, that person has already borrowed $400k more than the NAB would now allow. Last weeks policy changes from the NAB adjusted he borrowing capacity downwards by almost $1M.

    Yet another reason to avoid cross collateralisation unless absolutely necessary (and in most cases it simply isn't necessary).
     
    Last edited: 29th Nov, 2016
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  11. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Which bank are you with?

    May be worth restructuring prior to selling - with some banks this can be done without a new assessment.

    @Peter_Tersteeg Was this for a partial release?
    I've never had this trigger a new assessment?
     
  12. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I haven't seen this myself Jess, it's more a hypothetical.

    Imagine the sale couldn't cover the loan, so there was some residual amount owing. The bank decides that the new structure is credit critical (possibly now in LMI territory?) and wants to reassess everything under todays policy...
     
    Last edited: 29th Nov, 2016
  13. Marg4000

    Marg4000 Well-Known Member

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    No idea. A professional should be able to advise.

    But the good thing is that you know there may be a time delay in untangling the loans when you sell. Make sure you opt for a longer settlement period to allow for this.
    Marg
     
  14. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Yes in LMI it could be a different story. Definitely worth keeping in mind - I think we may see more of this kind of thing in the future, especially given the banks love of x-coll.
     
  15. Brady

    Brady Well-Known Member

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    Get the discharge in earlier @dan2101 partial discharges will take a bit longer.
     
  16. dan2101

    dan2101 Well-Known Member

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    Great thanks everyone. Have approx $130k equity in the property I'm keeping. So even if I lose say $30-40k in the property I sell I think I should be ok?

    I'll have a chat to my broker. Definitely learnt a lesson!
     
  17. dabbler

    dabbler Well-Known Member

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    Crossing in not always going to be bad, just have to have a decent reason, if you have capacity it does not sound like a problem, just more complex to work out, even if you need to re finance the remaining place, not the end of the world.
     

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