Can the bank withhold sales proceeds to offset a second loan?

Discussion in 'Loans & Mortgage Brokers' started by Gaby Amoud, 29th Apr, 2016.

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  1. Gaby Amoud

    Gaby Amoud Member

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    Hello forum members,

    I would like your thoughts on the following:

    2 investment properties
    Property A (Loan A)
    Property B (Loan B) LVR 65-70%
    1 bank

    If I were to sell property A and make a profit, would the bank retain the net gain to apply to Loan B?

    Thank you for your advice
     
    Gaby Amoud, 29th Apr, 2016
    #1
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    If the loans are cross collateralised they could require loan B to be paid down, although with the LVRs described it's unlikely.
     
    Peter_Tersteeg, 29th Apr, 2016
    #2
  3. Gaby Amoud

    Gaby Amoud Member

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    Evening Peter,
    The loans are not crossed. They are 2 individual loans with 2 individual securities.
    Thanks
     
    Gaby Amoud, 29th Apr, 2016
    #3
  4. Corey Batt

    Corey Batt Well-Known Member

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    Generally you should be fine then. As Peter has noted - this is the biggest issue with cross collateralised setups and a great reason not to do it.
     
    Corey Batt, 29th Apr, 2016
    #4
    Gaby Amoud likes this.
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I don't know if they could unless the securities were crossed. But I haven't really considered this before. If loan A is secured by property 1 all you need is a discharge of mortgage over property 1. I can't imagine the bank wanting to do a reassessment of your ability to pay the remaining loan, but it is a possibility.
     
    Terry_w, 29th Apr, 2016
    #5
  6. Redom

    Redom Mortgage Broker Business Plus Member

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    You should be fine, its unlikely the bank will control the proceeds from the sale. It will just involve a standard payout of the existing mortgage on the property being sold.
     
    Redom, 30th Apr, 2016
    #6
  7. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Generally only an issue when properties are crossed.

    Just had this happen to a client who's previous broker crossed up her loans - she sold one property now is being forced to use the proceeds to pay down the loan on the remaining due to a valuation coming in low :-(

    Cheers

    Jamie
     
    Jamie Moore, 30th Apr, 2016
    #7
  8. jim1964

    jim1964 1941

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    I got caught once in this scenario,only the once though.Lesson learnt.
     
    jim1964, 30th Apr, 2016
    #8