I am lending money to a family member. Do I need a mortgage?
Today’s article was prompted by a question from the general public. A lady called the office and said:
‘I am lending money to my son to buy a house. I am considering downloading your mortgage precedent – even though I don’t need one and am doing it myself.’
If you are lending money to a family member – do you need to register a mortgage as security?
The presumption here is that you trust your family member to pay the money back. That overlooks all the other reasons you should register a mortgage.
Even though your family member may want to pay you back, there may be external circumstances that prevent them from doing. A few examples.
- Bankruptcy or financial difficulties. The property is repossessed by the bank. They sell the property to pay out the loan. You receive nothing. The borrower no longer has an asset they can sell to pay you back.
- These can strike anyone, anytime. The borrower is sued, forced to sell their property. The property is sold to pay the plaintiff. You receive nothing. . The borrower no longer has an asset they can sell to pay you back.
- The borrower’s marriage / domestic relationship breaks down and their partner wants a payout. The property is sold to pay the ex-partner. Again here you can end up with nothing.
Get the picture?
A mortgage registered on the property makes you a secured creditor and gives you priority over anyone else seeking money from the borrower. Nothing can be done with the property for any reason without you being paid.
Can you do it yourself? Unless you are a lawyer, no. Mortgages can only be registered via an Electronic Lodgement Network Operator (ELNO). You need to be a member. They don’t just hand them out. You must be a solicitor or have some other valid reason for having one.
When should you get one? If you are lending more than $10,000.00, we always recommend you get a mortgage to secure it. No mortgage, no loan.
What are my chances of recouping my money without a registered mortgage? Realistically, they are very slim.
