Legal Tip 8: Avoid Cross Collateralising Security Properties

The legal side of avoiding cross collateralising properties

There are many reasons to avoid cross collateralising properties when borrowing. This involves using 2 or more properties as security for one loan.

Why avoid? Because the lender will place a mortgage over each property used as security. This means that if the borrower defaults the lender can take either property and sell it to recover their money. The lender is advantaged and the borrower disadvantaged.

A better way to go would be to borrow deposit elsewhere and to use one property as security. This way if you default for the loan the lender can only immediately take possession of the property which they have a mortgage over. They would then take this property and sell it and only come after other property if there is a shortfall.

The main point here is that you will gain extra time to sort things out. Perhaps many months too. This could give you a chance to sell other properties you own, on your own terms and/or to raise money other ways to pay any shortfall.

The advantage with no crossing is that it is safer for the borrower and it will give you much more time to sort things out if you cannot pay the loan or otherwise default.

For the lending side there are also many advantages and I suggest you read Peter and Jamie's posts in the finance section.

 

Hi Terry,
It has been a while....
I am grateful I didn't read this tip 20 years ago, as it would of reduced my capital gain by over $5 Million to date. With finances, there are no blanket solutions, individual circumstances must be considered.

 

Hi Leigh

Why would it have reduced your capital gains?

Cross collateralising is about security for a loan and doesn't necessarily effect the amount of property you could have bought.

You could have achieved the same amount of borrowings but with a less risky outcome.

 

The reasons were worth it to me, and in fact quite important that I crossed my securities at the time. Today, I am majorly uncrossed in securities for the many reasons you know.

I previously read a comment on here about you asking a reader if they wanted to sue a fellow industry professional person that gave them advice. My point is that there are many reasons that a person may select a path in their financial life and in a particular direction.

I know that you understand that with hindsight, financial planning can always be done better. What is very interesting, to look over your file notes and to see why particular clients are structured in a particular way. Sometimes I scratch my head when thinking about the banks, or position a person sits. Tt can be as simple as that they don't like a bank, person, or simply just wish to act due to their impatience or lack of time. It may even be as simple as they do not wish to pay a fee of $100.

With all the advice on here that you provide, I don't think it wise that you would encourage readers to sue other industry professionals that are doing their best and with the full fact find complete.

This forum is very limited with personal detail, and readers look here for advice, and without considering the unlimited other variables the readers react and are often armed with only one aspect of what is relevant. The reaction of our clients is often knee jerk and without consideration of other variables and factors.

 

Yes i don't encourage people to sue but if someone has been given negligent advice from a professional and suffered a loss from this advice they should seriously consider getting legal advice on suing to make up for this loss. The professional is covered by insurance for this sort of thing.

But I don't do litigation myself so don't profit out of this, and I don't advise on it other than to go and see a litigation lawyer.

But what has all this got to do with cross coll?

If a broker advises someone to cross loan securities this is not negligent advice as it is standard industry practice so a broker couldn't be sued for it. It is just that there is a better way in most cases - but not all, and I think I have written a thread on here on a few reasons why someone might want to cross.

 

Agreed, there are more reasons to not cross than to cross, but in my case crossing was important. My personal information is not to be aired for the rest of the world. That was not my point, I just read a prior post you did prior to reading this crossing article (the article was correct but would have cost me (opportunity cost that went on to some big gains), and it got me thinking. Not that you profit from directly suing people, but sometimes your advice is incorrect on here, and you profit from being a mortgage broker is in effect the same. From one industry professional to another, we know that we must consider all detail from all angles, with all personalities and without hindsight. It just got me thinking, that you were to quick to react given the place you put yourself every day.

 

Hey, things have changed, I cannot edit typos etc within time frames. Be careful mate, and keep up the work.

 

I am sure I have posted incorrect things here from time to time as I have over 10,000 posts, but I am happy for anyone to pull me up on them.

 

Terry, pull you up yes, but i would be very disappointed if another industry professional said to sue you without the full story. In fact I would be the first person to defend you. Society is already encouraging the blame game, you are better than that.

 

terry...I would sue him for that.

I have never heard someone say crossing helped them. Its often the other way.
Its like someone without an offset finding out they paid down a home loan and now wants to rent out the home. There is no good answer to that one usually.

 

Yeah I thought I made a mistake once. Turns out I was wrong

 

I was wondering when you would show up Paul, always popping up on terry's hard work...

I should add, valuable advice though!

 

someone would have a hard time suing over 'advice' in a post and I don't think I have ever encouraged anyone to do so.

But when giving legal advice to clients I would have to bring up the possibility of suing where they have received negligent advice.

For example i advised a client about a structuring matter and noticed that they had strange ownership % set up that was resulting in more land tax. They told me their broker suggested they set up that way for land tax purposes. The broker was not licenced to give legal advice (but was a CPA or CA). So I had to suggest to the client that they seek legal advice on suing the broker. If I didn't i might have been negligent.

 

Full story from both parties is important?
Moving on.[/QUOTE]

 

I have asked you lots of questions and you have given me some general guidance but always telling me to get personal tax or legal advice, which is of course the correct response. I don't recall you ever advising a forum member to sue someone.

 

I think i have told a few to consider it.

 

Just curious, people write on these forums day and night, removing themselves from family, exercise, holidays etc. Do you get paid, any form of remuneration, soft benefits. I have noticed business details and phone numbers with each post?

 

Well, I don't remove myself from family, exercise or holidays. I mostly post when I in between jobs on a big reno or while I am watching TV because TV is boring.

I don't get paid anything, I don't get any benefits other than a lot of knowledge. I take knowledge and I try to contribute valuable knowledge. I feel that if I am being helped then I should repay the debt by helping. I don't post business details or phone numbers so you are mistaken with that.

 

I am currently sitting in a cafe in Bangkok posting while on hols