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second charge

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  • second charge

    Buyer has made an offer for my house, but cant or wont get mortgage for full amount so will be short by 50,000. He wants me to have a second charge put on the property for 50,000 and will pay me the 50,000 in 12 months time by either remortgaging new house or one of his others.
    He has offered to pay all solicitors bills - I do know him ( but not well ).
    I am tempted as then I will be able to proceed with buying smaller property and it will be a quick chain free sale, but am worried as to what redress I will have if he cant or wont pay the money owing.
    Has anybody come across this type of offer before and if so did it work out ok?
    I feel that I will really be giving him an interest free12 mth loan.
    I would be very grateful for any thoughts and advice

  • #2
    Sounds dodgy as hell - if the banks won't lend the £50k shortfall, then they may believe they have good reason to make such a refusal - in which case, what grounds do you have for believing the payment should be absolutely fine?

    Certainly there are instances where banks are just plain blinkered, but certainly it sounds like an issue you should ensure you have cast iron guarantees on.

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    • #3
      Yes that was my intial reaction - very dodgy. He's bought 2 other properties recently which he's renting out and says he's just stretched a bit finacially at the moment , but really wants my house as his family home.
      Have done some googling and this seems quite common in the states where they call it seller finacing!
      Its what would constitute a cast iron guarantee in the event of him defaulting dying etc
      Many thanks

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      • #4
        A second charge is a second charge! It takes priority after his first mortgage so if he defaults his first lender will probably gets its money but you might not.

        1. 1st lender may not agree to 2nd charge being registered.
        2. If it is regsitered and he doesn't pay when charge dsays he shoudl you will haev to take possession proceedings in court and sell the prioeprty but you will haev to pay 1st lender's money back out of the proceeds before you get nay - so a lot of time and cost.
        RICHARD WEBSTERwww.rwco.co.uk
        As a conveyancing solicitor I want to be helpful (England/Wales only) but can't accept liability for this.

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        • #5
          Good responses by the guys above and you need to seriously be concerned by whats your being offered.

          One other point is that no mortgage lender will work on this being a gifted deposit. What this means is that if hes saying he cant get a mortgage for the last £50K the mortgage lender will still onyl lend a percentage of the lower price he is paying you.
          Worldwide Financial Planning is a specialist independent provider of Large mortgages.

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          • #6
            Second charge

            If the buyer is financing his purchase by two loans (one from his first lender and the other from you), he has no stake in the property and if he defaults there is unlikely to be enough value in the property to pay (a) the cost of possession proceedings (b) the costs of sale (c) the first mortghage debt and (d) the £50k due to you. In those circumstances, you would be mad to agree ;-)

            If the buyer is putting a decent amount (£50k+?) of his own money in as well, there is less risk to you, as there is more value available. The decision then depends on how keen you are to sell

            Hope this helps
            This is based on my experience as a conveyancing solicitor in England, but I do not accept liability for information I give in this forum

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