Property prices in today’s market can be steep, and obtaining finance may be difficult. Getting help from family to enter the property market makes sense, but the finer details of agreements made over the kitchen table are often overlooked, writes TERRY MORGAN.
Suppose a parent agrees to lend their child $200,000 to buy a property. No paperwork is drawn up, and while repayment plans are discussed, nothing is written down. The child buys the property, and the agreed monthly repayments begin.
Suddenly, the child has a new partner who, it turns out, is in financial strife, and the property repayments stop. Unfortunately, the parent is not in the best legal position to demand his or her money, and the new partner may even be able to claim an interest in the property if the relationship breaks up.
It’s an unpleasant scenario, but all too common.
As a parent, there are a couple of basic steps you can take to protect your interests:
- An informal mortgage document should be drawn up. This means the details of the loan are recorded, but not actually registered, against the title.
- A caveat can be lodged on the title. Generally, a property cannot be further encumbered by bank loans or sold until the caveat is removed.
In a familial context, it is of course also important to consider maintenance of the relationship. To avoid irreparable damage, it is a good idea for anyone doing a family deal in relation to property to draw up a written agreement from the very beginning.
It is important that as many scenarios as possible are considered and the ways that each will be dealt with: Is there a monthly repayment plan? Is there a time in which the parent will be paid out in full? Is interest payable? If the property doubles in value, will the amount repaid also double? Does the parent get a “vote” on renovation plans, or in choosing a tenant?
It may seem pessimistic, but the message is clear and simple – put something in writing! Do not assume that because it is family, everything will work itself out.