In this edition of ‘It depends’, partner Scott Hay-Bartlem talks about whether you should have a mortgage for your related party loan.
Hello. In this It depends we’re talking about whether I should have a mortgage for my related party loan.
What are the main documents for a related party loan?
So, if we’ve loaned money to a related party, it’s great to have some kind of document which sets out the terms. When’s it repayable? Monthly? At the end? Is there interest payable? All those kinds of things. That will typically be loan agreement, might be facility deed, it might be an acknowledgement of debt. And of course we don’t need to have any documents at all, it could just be a verbal arrangement, but they’re difficult to prove what the rules can be.
A mortgage is different?
So, a mortgage is a separate document which actually gives you security over a particular asset. And what that means is that you get priority in getting repaid over other creditors and it also means that you have the ability, if there’s a default, to actually force the sale of that property to get your money back. So, it enhances your ability to get repaid for the amount that you’re owed.
Should I have a mortgage?
It depends. Now, it’s great from a lenders point of view because if you’ve got a mortgage registered over the property, it means that the borrower who owns a property can’t sell it without you being involved. They’re not going to be able to mortgage or borrow more on that property because your mortgage is already there. It’s really great because it protects your interest, allows you to get repaid quicker and gives you more options. Now you have to actually register that mortgage at the titles office. It’s not enough just have a unregistered mortgage.
Is a mortgage only for real estate?
So, a mortgage itself is over real estate, yes. You can also have charges over things like shares, cars, plant and equipment, business assets. If it’s not over real estate, then usually you would register it on the PPSR, the personal property securities register. We’ve got other It depends about that. So, if you’ve got any questions about related party loans, mortgages or not, please contact a member of our team. Thanks for watching this It depends.