Non Recourse Mortgage? help!

N

newtoallthis

Registered User
Messages
16
Hi All,
This is my first post so please bear with me :)
In a nutshell my family home is on the market and was sale agreed during the summer. It has still not completed, developers have bought it and intend eventually building apartments on it. However they seem to be stalling in an effort to get out of paying stamp duty or some of the associated taxes. They basically want my father to sign a non recourse mortgage for the sale to go through? does anyone have any experience of this or know what it means? why would my father need to be signing this mortgage when it's the buyer that's taking it out and what are the implications in signing this? Any help would be very much appreciated, thanks in advance.
 
Hmmm, how interesting. It's a new one to me. How is the deal structured? Is your father to receive money or apartment/s in the development?
 
Not really sure Vanilla,
Originally they had proposed paying my father less than the agreed sale price and him getting one of the units in recompense. But he wasn't on for that. They haven't gone through the ins and outs of this non recourse mortgage at all, and it's all gobbledegook to him. It does sound though like it would be my father they want to take out the non recourse mortgage doesn't it? Otherwise why would he need to sign it if it's them taking it out? thanks for your input vanilla, we're really lost here!
 
Yes he spoke to his solicitor who thinks it's ok to proceed with this but he did admit he didn't know a whole lot about non recourse mortgages and would look into it further before giving any further advice.
 
non-recourse mortgage - a home loan in which the borrower can never owe more than the home's value at the time the loan is repaid
 
Thanks, i had found that explanation on google too, but that assumes that it's my father that is taking out the mortgage which really he doesn't want to do and the developer never made this intention clear. He seemed to indicate that they would be borrowing the money but my father had to sign this non recourse mortgage, that's the bit we don't understand, like surely it doesn't involve my father whatever way they go about getting this mortgage? by his asking this i'm assuming they want HIM to get this mortgage then not them? do you think? sorry, i know this is all very confusing, i just don't know where we stand in relation to this whole situation.
 
Is he to receive the cash proceeds of sale on a closing date, or is it after the developers go into occupation- perhaps once they have developed and sold on? The only thing I can think of is that your father is being asked instead of receiving sale proceeds on a defined closing date, to accept instead a charge over the sold property, presumably with a defined date for repayment. If it is non - recourse, that would simply mean that the developers could never be held liable themselves for more than the value of the property. It's really interesting. Hope someone with experience of this replies. Otherwise, please keep us posted.
 
Yes i hope someone who has experience of this can enlighten me, it is interesting but also a bit daunting for us as we have no idea what all this involves. He was supposed to receive the cash proceeds of the sale back in january but then this was postponed as they wanted to put a new clause in the contract re planning permission. but now this non recourse mortgage idea is on the cards. yes i think you could be right about "instead of receiving sale proceeds on a defined closing date, to accept instead a charge over the sold property". The developer would need to sit down and explain all this far more in depth though before anything is agreed as it's all too vague at this point for my father to just agree. I will keep you posted though on what happens. But in the meantime if there is anyone out there who has been through this i'd love to hear how it worked out? thanks.
 
Vanilla said:
Is The only thing I can think of is that your father is being asked instead of receiving sale proceeds on a defined closing date, to accept instead a charge over the sold property, presumably with a defined date for repayment. If it is non - recourse, that would simply mean that the developers could never be held liable themselves for more than the value of the property.
Click to expand...

In my own opinion - this is quite dodgy - given that the price of cabbages (that property topic that must not be discussed on this site) is possibly falling (going sideways and being eaten by inflation at best), then your father is effectively taking some of the developer's risk. What should happen is that the developer pays x at a point in time for the property, then has variable costs of y for development, if the future total sale price of the development z is greater than x+y then the developer is in profit, however if z is actually less than x+y (the price of cabbages are going south now), then the developer makes a loss (by capping x to the future price of the development, the developer is making your father bear some of the risk of the development) - this is highly underhand and unethical.
 
Well, don't forget I'm only guessing. Would still like to know more and perhaps someone out there will have a better perspective on it.
 
Yes Derryman that is what i would be worried about too, if there's any chance of my father taking any of the losses then i will be advising him not to go for it. at best the developer will just pay up and worst case scenario is it will fall through if he refuses this but i wouldn't be on for him taking any of the developer's risks on himself.
 
Hi Newtoallthis.
I have dealt in this area before. I am a mortgage broker, but I also deal a lot in commercial lending. The developer in this case doesnt want to own the property his is buying - there would be stamp duty implications if the developer took title deeds. Instead, what they are proposing to do is to take out a loan in the name of your father, but the proceeds of the loan are to go to your father. ie if the sale price was €100K, the developer organises a loan for €100K - secured on the property STILL OWNED by your father and give him the money. They meet all the repayments, and then when the property is developed they sell on the property or sites or whatever, and then repay the original loan in your fathers name. The loan the developers organise for your father is not a non - recourse loan (techincally its a limited recourse loan). At the time of organising the limited recourse loan, your father signs a contract agreeing to the sale of the property to the developer. These loans are a bit complex, and fundamentally I dont think a very good idea. Your father is depending on the developer to keep up the payments, and not to muck up your dads credit history! My advice is to not proceed on that basis. Hope this helps?
 
Thanks munsterdude,
that is a fantastic explanation, clears a lot of things up, thank you so much for your expertise, much appreciated :)
 
newtoallthis said:
Thanks munsterdude,
that is a fantastic explanation, clears a lot of things up, thank you so much for your expertise, much appreciated :)
Click to expand...

no problems - glad to be able to help! Now, can anyone advise me on what I should get my wife for Valantines!!!
 
You must log in or register to reply here.
Back
Top