Q&As

Should a potential lender have any concerns about the enforceability an arrangement to share the profits of the sale of a property in return for the advance of a loan sum to a family member which is secured by way of a second legal mortgage?

read titleRead full title
Produced in partnership with Chris Bryden of 4 King’s Bench Walk
Published on LexisPSL on 07/10/2016

The following Property Q&A Produced in partnership with Chris Bryden of 4 King’s Bench Walk provides comprehensive and up to date legal information covering:

  • Should a potential lender have any concerns about the enforceability an arrangement to share the profits of the sale of a property in return for the advance of a loan sum to a family member which is secured by way of a second legal mortgage?
  • Case study
  • The importance of drafting
  • Additional provisions to be considered
  • Contemplating redemption of the mortgage

Huge numbers of legal disputes could be avoided by the parties to loan agreements committing these to writing and providing for security. A charge on a property is the obvious way in which familial lending can be secured.

So long as there is a sufficient equity in the property after the redemption of the first charge (which in almost all circumstances will be a mortgage to a bank or building society), see Practice Note: Mortgages—priority, the lender knows that they will get their monies back when the property is sold.

Case study

A client proposes to lend £70,000 to a family member, to be secured by way of a second charge. The charge will provide that, on redemption, the lender will be entitled to the sum advanced plus a percentage of any uplift in value of the property (to be ascertained by way of a market valuation). Should the lender be concerned about enforceability?

Related documents:

Popular documents