Mortgage co notification of change of beneficial ownership?

Change of beneficial ownership of mortgaged prop.

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A married couple wish to change the proportionate beneficial ownership of rented property, away from the default 50-50, via declaration of trust accompanied by form 17.

The property is mortgaged, and I am wondering whether the mortgage company
1) Need to be informed?
2) Need to provide permission?
3) Would be likely to withhold permission, where required?

I appreciate that this is a "legal" rather than "accountancy" question, but I would also expect it to be well-trodden familiar territory for many of you.  I expect it could also depend on the terms of the mortgage contract, but let us assume standard terms and conditions for this purpose.

Also, would it make a difference if the legal title is in sole name and the sole owner spouse wishes to place the property onto a bare trust in favour of them jointly, ie without a conveyance of legal title?

Thanks

With kind regards

Clint Westwood

Replies (8)

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By johngroganjga
21st Oct 2016 10:18

Yes they need to be told of the borrowers' intentions.

How they will respond I have no idea - not something I have ever been involved with. But that does not matter at this stage does it? It doesn't affect the need to inform them.

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By Justin Bryant
21st Oct 2016 13:54

Unless there is something stating such a requirement in the mortgage agreement, there should be no other legal requirement to tell the lender and even if there is such a requirement, as long as the mortgage continues to be paid I cannot see any obvious problem or risk re this (the lender is of course secured regardless).

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By carlh
21st Oct 2016 12:29

I side with Justin above, we get involved in a lot of property and trusts.

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Portia profile image
By Portia Nina Levin
24th Oct 2016 10:29

Legal advice should be sought in each specific situation. The borrower may find themselves in breach of the mortgage conditions if they effect such a transfer without the lender's consent; which will give the lender the opportunity to call in the debt if they discover the change.

Or you could do as clever Carl says, and just try winging it.

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Red Kite
By Red Kite
24th Oct 2016 10:51

Some of the advice here is akin to not being open and upfront with an insurance company.
The mortgage provider has provided the facility on the basis of joint ownership of the property and, unless informed, would be unaware of any material alteration, when they should be.
Whilst I would also suggest that legal advice is sought in this case, I see no reason why one would be averse to doing the right thing?

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Replying to Red Kite:
Portia profile image
By Portia Nina Levin
24th Oct 2016 12:25

Insurance contracts are special contracts, governed by a special area of law; it is the nature of that special area of law that means that the insurer can avoid liability if the insured has failed to disclose all material facts. It is, therefore, in the interests of the insured to ensure that all material facts are disclosed under an insurance contract.

In the case of spouses purchasing a property together with the use of a secured loan, the property will have been purchased as joint tenants, and the loan will be made to them on terms which (a) secures the entired debt on the entire property and (b) leaves the two borrowers jointly and severally liable for the entire loan.

As Justin says, there is no risk to the lender. However, if the loan carries a favourable interest rate, and the borrowers do anything in breach of the mortgage conditions, the lender will use that to recall the debt, so that they can employ their resources more effectively (ie to lending providing a higher return).

If nothing in the mortgage terms requires disclosure then it is a matter for the owners of the property to decide amongst themselves the relationship which is to subsist, provided that there is no disadvantage to the lender as a result.

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Replying to Portia Nina Levin:
Red Kite
By Red Kite
24th Oct 2016 12:35

I'm obliged for your detailed explanations.

I was merely trying to point out that, from my experience, honesty and integrity costs very little. Provide the mortgage provider with as much detail as possible, whenever appropriate and, in so doing, you leave no stone un-turned, so to speak

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By Justin Bryant
24th Oct 2016 12:20

But there are lots of donatio mortis causa legal cases re title deeds of mortgaged properties being gifted on someone's deathbed etc. and I have never heard of any problems there.

Actually, if they had the deeds, it probably wasn't mortgaged, but I see no major difference to bequeathing a mortgaged property in a will and there are never any problems there.

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