Family trust and mortgage security

[beans]

I have a family trust with 20% deposit which I am using to buy a property. The trust will own the property but won't have anything else in it. I am taking out a mortgage and will be make the repayments myself.

The bank has told me that they need my fellow trustees (family members) to be co-borrowers and guarantee the loan. I don't want the trustees to have to disclose all their personal details to the bank let alone guarantee the loan. Surely the trust can own the property without the trustees having to sign the dotted line to be personally liable?

i would have thought I would be the borrower in my personal capacity and guarantee the loan, and that the trust would simply put the property up as security given it will have legal ownership of the asset. Does this sound right and what should I be telling the bank?

Thanks heaps in advance!

[BigDreamer]

I have a family trust with 20% deposit which I am using to buy a property. The trust will own the property but won't have anything else in it. I am taking out a mortgage and will be make the repayments myself.

The bank has told me that they need my fellow trustees (family members) to be co-borrowers and guarantee the loan. I don't want the trustees to have to disclose all their personal details to the bank let alone guarantee the loan. Surely the trust can own the property without the trustees having to sign the dotted line to be personally liable?

i would have thought I would be the borrower in my personal capacity and guarantee the loan, and that the trust would simply put the property up as security given it will have legal ownership of the asset. Does this sound right and what should I be telling the bank?

Thanks heaps in advance!

I don't recall the full legal wordings here but the trustees will still have to sign forms agreeing for a separate entity (you in this case) to borrow against the property under their trust.

We have done this a few times where our PPOR is under a family trust but our investment company (LTC) has borrowed against the PPOR against the family trust.

[BigDreamer]

I don't want the trustees to have to disclose all their personal details to the bank let alone guarantee the loan.

Unless the property is currently mortgage-free, this shouldn't be any issues as the bank would have all their details anyway.

[Wellington Broker]

Unfortunately the bank is correct in this instance. The trust will own the property so all trustees must be guarantors at least. The lending can still be in your personal name and banks will vary in how much information they require from guarantors - typically they will need a statement of position at a minimum

[beans]

I don't recall the full legal wordings here but the trustees will still have to sign forms agreeing for a separate entity (you in this case) to borrow against the property under their trust.

We have done this a few times where our PPOR is under a family trust but our investment company (LTC) has borrowed against the PPOR against the family trust.

Does this mean the trustees should not be required to sign a form agreeing for the trust property to be held as security rather than having to give a full guarantee?

[beans]

Unfortunately the bank is correct in this instance. The trust will own the property so all trustees must be guarantors at least. The lending can still be in your personal name and banks will vary in how much information they require from guarantors - typically they will need a statement of position at a minimum

But could they go after my trustees for more than what is in the trust if I default? I plan to gift to the trust as the mortgage is paid down but don't want to expose the trustees to anymore than what is in the trust. To protect the trustees own assets, we wouldn't want the bank to be able to go after their own assets, houses etc in case I default.

[Wayne]

The trust will own the property

The Trustees own the property - not the Trust.
Trusts don't 'own' property or anything else, the trustees do.

[Wellington Broker]

The Trustees own the property - not the Trust.
Trusts don't 'own' property or anything else, the trustees do.

Well sure, the trust isn't a legal entity in and of itself

[Wellington Broker]

But could they go after my trustees for more than what is in the trust if I default? I plan to gift to the trust as the mortgage is paid down but don't want to expose the trustees to anymore than what is in the trust. To protect the trustees own assets, we wouldn't want the bank to be able to go after their own assets, houses etc in case I default.

Depends. Are they also beneficiaries of the trust or are they independent trustees?

[cube]

We have a clause in our Trust that limits the exposure of the 'independent' trustee to the value of the assets in the trust.

Never been tested, but at least it is something.

[Beano]

The Trustees own the property - not the Trust.
Trusts don't 'own' property or anything else, the trustees do.

Does this apply to many of the maori trusts like "the tenth trust" in Wgton ?

[Wayne]

Does this apply to many of the maori trusts like "the tenth trust" in Wgton ?

No idea mate - I'm not a lawyer.
If it is a standard trust run by maori then yes - it is a trust.
If a 'maori trust' is some special kind of trust then yes, no, maybe.

[CD49]

The guarantee for an independant trustee can be limited to the net assets of the trust.

Speak to a (good) lawyer and they should be able to sort that out for you. The bank was happy to do this for us when we were in the same situation a couple of months ago.