Q&As

A buyer wishes to purchase a property with the assistance of mortgage funding. It has been proposed that a declaration of trust is entered into which will provide that 60% of the equity in the property will belong to the buyer’s or borrower's parents and 40% of the equity will belong to the borrower. It is understood that this is a means of avoiding a second charge against the property. The borrower's parents will not be occupying the property. What are the risks for the lender in this type of arrangement?

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Produced in partnership with Helen Galley of XXIV Old Buildings
Published on LexisPSL on 28/02/2018

The following Property Q&A Produced in partnership with Helen Galley of XXIV Old Buildings provides comprehensive and up to date legal information covering:

  • A buyer wishes to purchase a property with the assistance of mortgage funding. It has been proposed that a declaration of trust is entered into which will provide that 60% of the equity in the property will belong to the buyer’s or borrower's parents and 40% of the equity will belong to the borrower. It is understood that this is a means of avoiding a second charge against the property. The borrower's parents will not be occupying the property. What are the risks for the lender in this type of arrangement?

The interest of the parents under the trust can take effect only in equity. Assuming that:

  1. the property being purchased is registered land

  2. the legal ownership is to be taken in the name of the son or daughter alone

  3. a charge by way of legal mortgage over the legal estate in the property is to be granted to the mortgage lender, and

  4. the charge and the deed of trust are both to be executed at the time of purchase of the property

it is highly unlikely that there is any significant risk to the lender.

The disposition of the legal estate effected by the grant of the legal charge will overreach the trust of land pursuant to which the undivided shares are held. This is so despite the fact that the parents share is greater than that of the legal owner. Overreaching arises out of and is a corollary of

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