In particular we focus on getting the loan structure right the first time, choosing which lenders to use in the right order (yes this is important) and finally getting our clients the best deal possible.
Untangling a series of crossed collateralised properties can be very difficult. It can also mean the borrower loses control of their affairs and can expose them to unnecessary risk.
As an example, say an investor has 5 properties all tied together as security for various loans and decided to sell one of their properties. Lenders can require the following to happen.
*The other 4 remaining properties would have to be valued to see if the security for the remaining loans will be sufficient. If it wasn’t, the lender can demand all sale proceeds be used to reduce the overall debt. In extreme cases a lender may even not allow the sale to go through.
*Some lenders require a full reassessment of a borrower’s financial position to see if they can still afford the remaining loans. This can come at an inconvenient time for the borrower. If the remaining loans are not deemed affordable by the lender they can as above demand the entire sale proceeds are used to reduce their overall debt level. In extreme cases, if the lender takes the entire sales proceeds and they are still NOT satisfied that the remaining loans fit within their policy, it may trigger a default. In this case a lender could force a borrower to repay all their loans immediately. In practice this would mean having to liquidate their entire property holdings, including possibly the family home, or repay the debt in full by refinancing to another lender (which might not be possible).
*Most lenders will require new loan and mortgage documents to be issued. While this in itself is no big deal it can be a hassle!
By keeping their properties stand alone and not cross collateralised a borrower can sell any of their properties and can pay out only the loan secured by that property. This is without any dictation from the lender regarding overall debt and other properties. There is no need for valuations or reassessment of your financial position with the lender. Most importantly, the investor dictates what happens to net sale proceeds.
