Can any budding Solicitors help with personal loan question?

[Toon Chris]

*edited as to make it a simpler question*

 

Most people here are helpful souls and some of them quite knowledgeable I was wondering if anyone could advise on the legality of a document?

 

For various reasons I want to loan some money to an elderly member if my family, payable on their death or sale of house. I'm not looking for advice on the decision, I'm looking on advice as to how to make the loan legal.

 

Is it sufficient to have a letter signed by both parties like the text below, or do I need to have it notorised by a solicitor? Basically is this a document that stands up as a claim against his estate?

 

There are no personal trust issues here, but I'd like it to be 'official'.

 

 

 

By virtue of this agreement dated November 2014 xxxx and

xxx acknowledge receipt of the capital sum of £xxx (xxx pounds) from xxx.

 

The capital sum is to be repaid on the earlier of the death of xxx or

of the sale of the property known as <address>. Interest at the rate of 5% per annum compound calculated on a daily basis from the date of this agreement is to accrue on the outstanding balance.

 

All or part of the capital sum can be repaid by mutual agreement earlier than either of

the two events listed in the preceding paragraph.

 

Signed <xxx>

Signed <xxx>

Edited November 22, 2014 by Toon Chris

[comrade]

Looks good enough. There is no strict need for a solicitor, but if it is a large sum it might be worth getting an independent witness. This is to avoid possible forgery claims.

 

Keep in mind that it will be an unsecured loan, so it will rank lower than any mortgages or other secured loans your borrower might have on the property. It will also rank the same as their other unsecured borrowing (credit cards, etc), so if after the death there is £10k assets and £100k loans you will only get a fraction of your loan back.

[Toon Chris]

Cheers, that's very helpful thanks.

I also added a binding sentence:

 

"This agreement will pass to the benefit of and be binding upon the respective heirs, executors, administrators, successors and permitted assigns of the Borrower and Lender"

[Richy]

Personally I would get a loan agreement drawn up by a Solicitor. They have standard ones so shouldn't cost much. I made a loan to a mate a few months ago, and the loan agreement went into pages. Belt and braces I imagine. You need to prove it is a loan, otherwise when the beneficiary dies the Revenue could deem it a gift, and it could be part of their estate for Inheritance Tax, as well as being not repayable to you.

 

I suppose it would also depend on amounts. if you are talking tens of thousands definitely get a solicitor. If you are talking the odd thousand you need to take into account the solicitors fees more.

 

When I made my loan, the beneficiary paid my solicitors fees.

[Flex]

You could pop into a citizens advise bureau? Just a thought.

[Ricey]

My understanding is that to make it 'legal' in terms of what you are asking (upon sale of property or death......and I assume you mean by death sale of the property again really) you need to register a charge against the property.

 

I can't advice in respect of you securing your debt against the estate itself.....I don't understand enough about that but if you want to SECURE your debt you need to put a charge on the property.

 

Reason I say this is that any number of people or institutions could charge the property between now and death.....if that happens there may be no equity remaining and as such no monies to clear unsecured debts such as your own.

 

Definite one for a solicitor......this isn't as simple as it sounds.

[cmck13]

Part of my job, now retired from, was a legal executive assistant to the company. Simply never do it yourself there's no come back if you get it wrong and you will repent at leisure. I never forget my first day of training and I was told the old chestnut " its not worth the paper its written on" many appeals at the high courts still fail because of this. Personally I was asked but never got involved in any matters involving my family it can never be seen as independent and it can easily end in tears.

[mbs]

I used to be a director of a company specialising in equity release, where elderly people who owned their own house borrowed money repayable on death or the sale of the property. The amount loaned was based on actuarial projections and there were guarantees that the loan + compound interest could never exceed the value of the property. The paperwork was quite hefty to ensure there was no problems at the end of the day, definitely recommend you take legal advice.

Edited November 25, 2014 by mbs

[HaydnH]

As above get a solicitor to do it properly. You could even add the solicitor costs to the loan, I'm sure the elderly family member won't mind paying for it after his or hers death.

[Toon Chris]

Thanks all

[comrade]

My understanding is that to make it 'legal' in terms of what you are asking (upon sale of property or death......and I assume you mean by death sale of the property again really) you need to register a charge against the property.

Your understanding is wrong. The term is simply that the outstanding balance of the loan becomes payable either on death by the estate of the borrower or on sale by the borrower himself. There is no need for a charge to do that. You need the charge if you want a security for the loan so that your loan gets a priority over all other debts, credit cards etc. It might be undesirable to lend without any security, but OP seems to understand that.

[Ponsonby]

If it is a significant amount of money, and the person you are lending the money to owns their house, why not 'buy' a percentage of the house. They have the cash, you have a firm asset. If this is done properly through a solicitor and land registry then your money is 'safe as houses'.

This would be far safer than 'risking' what happens with the estate when the person dies - which believe me, can be more complicated than you can imagine.

[Toon Chris]

I think a relevant point here is that I will be a 50% beneficiary of the estate anyway, so what this document gives me is 50% + the loan.

If the estate does not have much money then its 'my' money I'm biting into anyway.

From your kind responses it looks like the only advantages I would like to get into the document are how to prioritise my claim against other creditors, such as utilities, credit cards etc. Securing the loan against the property looks to be a way to do that.

[Ricey]

My understanding is that to make it 'legal' in terms of what you are asking (upon sale of property or death......and I assume you mean by death sale of the property again really) you need to register a charge against the property.

Your understanding is wrong. The term is simply that the outstanding balance of the loan becomes payable either on death by the estate of the borrower or on sale by the borrower himself. There is no need for a charge to do that. You need the charge if you want a security for the loan so that your loan gets a priority over all other debts, credit cards etc. It might be undesirable to lend without any security, but OP seems to understand that.

Sorry I perhaps didn't explain myself very well.

 

If the OP wants to ensure priority of repayment upon sale of a property and to not risk being ranked behind other chargees or unsecured creditors then he needs to charge the property.

 

Purely only to protect in a negative equity situation.

[Richf]

I think importantly the loan needs to be paid by the estate before any persons named in the will receive anything , thats an important distinction and might even be worth mentioning in the will in addition to this

 

Thats why you need professional advice

[comrade]

From your kind responses it looks like the only advantages I would like to get into the document are how to prioritise my claim against other creditors, such as utilities, credit cards etc. Securing the loan against the property looks to be a way to do that.

I you want a charge on the property you definitely need to get a solicitor to do that. This is pretty much where DIY ends with those things. There is a whole lot of issues like formality requirements, registration of the charge, existing charges (if any), beneficial interests and probably few other things that I can't remember at the moment.