VIC Parent Contributing to Daughter's Mortgage - Consequences under Property Law?

[anya]

Hi.

My daughter recently went through an amicable separation with her partner and needs my financial help to pay out her ex partner to take over the mortgage and is looking at selling the property in 5 to 7 years time. We are wanting to make this a 'business partnership' to ensure we both are able to have our needs met. She gets to keep the house and I get interest on top of the money I contribute when she either sells the property or when she is in a better financial position to get the money from the bank to repay me.

What do I/we need to be aware of legally under Property Law? For example, is it better for me to have my name on the mortgage papers or not? Would it be best if we made a legal contract to review the decision in 5 years time? What are the pitfalls I/we need to be aware of so that I/we can avoid it now rather than later?

Any other suggestions appreciated.

Thank you

 

[Sophea]

Hi Anya,

I would say documenting the loan as a personal loan to your daughter would be the best way. If you put yourself on the mortgage you become jointly and severally liable to pay the mortgage out. Therefore if your daughter can't make the payments, they can come after you for the full amount. It may also require that you are placed on the title which will require a transfer and may incur stamp duty - depending on the circumstances.

You can draw up a document which sets out all the terms of the loan between you, the interest rate and when the loan is to be paid back. This will be effective to enforce in court if necessary provided you both agree to and sign it.

 

[anya]

Hi Anya,

I would say documenting the loan as a personal loan to your daughter would be the best way. If you put yourself on the mortgage you become jointly and severally liable to pay the mortgage out. Therefore if your daughter can't make the payments, they can come after you for the full amount. It may also require that you are placed on the title which will require a transfer and may incur stamp duty - depending on the circumstances.

You can draw up a document which sets out all the terms of the loan between you, the interest rate and when the loan is to be paid back. This will be effective to enforce in court if necessary provided you both agree to and sign it.

Hi Anya,

I would say documenting the loan as a personal loan to your daughter would be the best way. If you put yourself on the mortgage you become jointly and severally liable to pay the mortgage out. Therefore if your daughter can't make the payments, they can come after you for the full amount. It may also require that you are placed on the title which will require a transfer and may incur stamp duty - depending on the circumstances.

You can draw up a document which sets out all the terms of the loan between you, the interest rate and when the loan is to be paid back. This will be effective to enforce in court if necessary provided you both agree to and sign it.

Thank you Sophea!

From what you're writing if I understand correctly, is that it doesn't need to be anything complex, something simple that we both agree on. Is there a format of a document that we would need to follow or will a Statement of Declaration be sufficient?

 

[Sophea]

I think you want something more like a loan agreement not just a statutory declaration. There are some basic loan form templates that you can find online which will give you an indication of what it should contain. In order to be valid it must include all the essential aspects of the agreement, so that nothing is left to be decided at a later date, however you can obviously mutually agree to alter the agreement at a later time if you wish.

 

[Tim W]

Hi. My daughter recently separately amicably with her partner and needs my financial help to pay out her ex partner to take over the mortgage and is looking at selling the property in 5 to 7 years time. We are wanting to make this a 'business partnership' to ensure we both are able to have our needs met, she gets to keep the house and I get interest on top of the money I contribute when she either sells the property sells or when she is in a better financial position to get the money from the bank to repay me.

What do I/we need to be aware of legally? For example, is it better for me to have my name on the mortgage papers or not? Would be best if we made a legal contract to review the decision in 5 years time? What are the pitfalls I/we need to be aware of so that I/we can avoid now rather than later? Any other suggestions appreciated.

thank you

Anya

First, contact the lender, and make sure you/she/they ("you") tell them what's happening.
If possible, they should make an appointment with a real person in a physical branch.
I suggest that you do not waste your time talking to outsourced third party overseas call centres.

Thing is, the borrower(s) usually have a duty to disclose to the lender any change of facts and circumstances material to the loan, such as

• a change of borrower(s) (coming in or going out), or
• any additional significant debt incurred by a borrower in respect of the property, or
• any new equitable interest in the property (such as interest payable from proceeds of some future sale)

Second, make a list of all the people and entities involved, and their relationship(s) to one another - commercial and otherwise.


Third, map out all the transactions that need to occur.
Get advice about CGT implications, and the impact that any interest payments you receive will have on your personal income tax (because if it's a "business arrangement" any interest you charge can still be assessable income). Then, work out how you will insure the loan you are making (what if she gets sick, hurt at work, or dies?), and who will pay for the premiums for that.


Fourth, work out how much you/she/whoever will need to spend in each transaction
(an accountant may be helpful here).


Fifth, have a solicitor draft you some proper releases and loan instruments, including, expressly, how the interest will be calculated, and when it will become payable.


Lastly (at least from me), consider that, while not unusual on their facts, this is quite a complex set of transactions. I strongly suggest engaging both an accountant and a solicitor (who may be different to the one doing the family law stuff) at an early stage.

 

[Sophea]

Said like a true expertTim W

 

[Tim W]

Said like a true expertTim W

Expert?
You must have me confused with someone else!

 

[anya]

I think you want something more like a loan agreement not just a statutory declaration. There are some basic loan form templates that you can find online which will give you an indication of what it should contain. In order to be valid it must include all the essential aspects of the agreement, so that nothing is left to be decided at a later date, however you can obviously mutually agree to alter the agreement at a later time if you wish.

Thank you for clarifying this Sophea!! I've also read your next message and will refer to this! cheers!!