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  1. #1

    Default Solicitors cost for updating section 92 on mortgage

    Hello, I was directed here from someone on Geekzone so this is my first post here. Hi!
    We are wanting to extend our mortgage slightly and have been told by the bank that we must have section 92 updated as we are now over 1.5 times what we originally borrowed (small initial mortgage and several renovation's and a trip to Europe). Section 92 is the stated priority limit on the mortgage. The solicitors we have used in the past have said that their cost will be ~$600. I am just wondering if that is a reasonable charge? It seems somewhat high to me.

  2. #2
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    A priority sum is so 'old hat.' All obligations is
    the norm, nowadays. No matter what it costs,
    get it changed to AO, not PS, as part of this
    process you're involved in.
    Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

  3. #3
    Join Date
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    Agree with Perry. A Variation of Mortgage increasing the Priority Sum has been unusual for the last 10 years - except if you have a second mortgage or other encumbrance. Almost every mortgage I've prepared since 1990 has been All Obligations.

    As for the cost, it modest compared with your bank raising the interest rate because your loan no longer meets their security requirements. The main thing you need is a solicitor you trust and can call at any time. Its a professional relationship, not shopping.

  4. #4
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    I have to gently disagree here...you can, and usually do, still have a section 92 priority sum written into the mortgage even though it might be All Obligations.

    For those who haven't run across it, s.92 of the Property Law Act 2007 allows a mortgagee to set a figure up to which they can lend without losing priority to a subsequent charge holder that lent funds prior to additional lending by the first mortgagee.

    Without a s.92 priority, things work like this:

    1. Owner borrows $500k on 1st mortgage
    2. Owner borrows $300k on 2nd mortgage
    3. Owner repays $400k of the 1st mortgage, so only $100k is left owing (yes, plus interest etc, but we're keeping it simple - so let's assume all interest is paid on time)
    4. Owner a year later borrows $500k from the 1st mortgagee against the increased equity in the house

    Of the owner's total $600k borrowed from the 1st mortgagee, only the $100k not earlier repaid is now secured ahead of the second mortgagee. The second $500k drawdown from the 1st mortgagee actually ranks after the 2nd mortgagee's loan. The owner borrowed it at a time when there was $100k on 1st mortgage and $300k on 2nd mortgage, in that order....the $500k drops in behind the both of them. The 2nd mortgagee lent its $300k on the basis that the initial 1st mortgage loan of $500k was ahead of it and that loan only.....not any subsequent borrowing. If you repay all or part of the 1st mortgagee's loan that also advances the 2nd mortgagees position.

    This naturally made revolving credit facilities difficult.

    To get around this, chargeholders would contract with each other as to who would have priority for what. Banks often still do this through a "Deed of Priority", and a mighty pain in the neck they are, as the banks concerned hardly ever get them signed and back to you before drawdown, leading to various exchanges of undertakings and much wasted time. But I disgress.

    The other way of dealing with the issue is to insert a s.92 priority limit, which means the 1st mortgage can lend and re-lend up to the priority limit without losing priority to the 2nd mortgagee. The priority limit will also cover interest (if expressed to do so) and the bank's costs.

    It doesn't actually matter whether the mortgage is All Obligations or not....a change to this amount still requires a variation of mortgage.

    I suspect Winston and Perry are thinking of a variation of the principal sum under a Fixed Sum mortgage. It seems to me that you already have an All Obligations mortgage, and that the problem is that you are approaching, in terms of overall borrowing, the s.92 priority already in place, or at least close enough that the bank wants more leeway, which is not the same thing as varying a fixed sum mortgage.

    Banks tend to go overboard with requiring a s.92 priority massively greater than the sum being borrowed.

    As to whether $600 is a good deal I can't say...the bank concerned could well be treating it like a refinance in that they require the law firm to give the same certifications as to title, rates, insurance certs, water even though the actual variation of mortgage alone would be fairly routine. I would have to see the instructions to comment.

    In the meantime, I hope the above is of some interest to you...

    Kind regards
    Ivan McIntosh
    Last edited by Ivan McIntosh; 14-02-2012 at 02:57 PM.

  5. #5
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    Quote Originally Posted by Ivan McIntosh View Post
    1. Owner borrows $500k on 1st mortgage
    2. Owner borrows $300k on 2nd mortgage
    3. Owner repays $400k of the 1st mortgage, so only $100k is left owing (yes, plus interest etc, but we're keeping it simple - so let's assume all interest is paid on time)
    4. Owner a year later borrows $500k from the 1st mortgagee against the increased equity in the house

    Of the owner's total $600k borrowed from the 1st mortgagee, only the $100k not earlier repaid is now secured ahead of the second mortgagee. The second $500k drawdown from the 1st mortgagee actually ranks after the 2nd mortgagee's loan. The owner borrowed it at a time when there was $100k on 1st mortgage and $300k on 2nd mortgage, in that order....the $500k drops in behind the both of them. The 2nd mortgagee lent its $300k on the basis that the initial 1st mortgage loan of $500k was ahead of it and that loan only.....not any subsequent borrowing. If you repay all or part of the 1st mortgagee's loan that also advances the 2nd mortgagees position.

    In the meantime, I hope the above is of some interest to you...
    That description of priority 'shuffling' was very interesting. Thanks.
    Are you - in effect - saying that the first mortagor should have
    and retain a priority sum of $600k, in addition to whatever all
    obligations aspects there are, to protect it's position, (no matter
    that some of the principle may one day be repaid early), on the
    basis that a later draw-down/advance may occur, taking the level
    of indebtedness back up to $600k? (All in an attempt to avoid
    the first mortgagor losing their priority/place in the queue?)

    Sorry for that overly lengthy sentence.
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  6. #6
    Join Date
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    Quote Originally Posted by Ivan McIntosh View Post
    I have to gently disagree here...you can, and usually do, still have a section 92 priority sum written into the mortgage even though it might be All Obligations.

    For those who haven't run across it, s.92 of the Property Law Act 2007 allows a mortgagee to set a figure up to which they can lend without losing priority to a subsequent charge holder that lent funds prior to additional lending by the first mortgagee.


    My bad, quite right. Must have misinterpreted the OP or the Alzheimers is sneaking up..


    And Perry - Yes. Banks want/need priority up to the specified sum so they can make further advances.

  7. #7
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    Quote Originally Posted by Perry View Post
    That description of priority 'shuffling' was very interesting. Thanks.
    Are you - in effect - saying that the first mortagor should have
    and retain a priority sum of $600k, in addition to whatever all
    obligations aspects there are, to protect it's position, (no matter
    that some of the principle may one day be repaid early), on the
    basis that a later draw-down/advance may occur, taking the level
    of indebtedness back up to $600k? (All in an attempt to avoid
    the first mortgagor losing their priority/place in the queue?)
    Yep.

    That is the entire point. The bank will usually (not always) require a priority to be set that is 50% or so more than the original principal sum, plus two years interest and costs. That allows them to lend more, even without any intervening repayment of principal, while retaining priority.


 

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