Brokers should always ask the question of their clients –
“and are there any related Trusts?”
Snapshot
| Borrower Rate % | 9.75% p.a. |
| LVR % | 45% |
| Loan $ | $1,550,000 |
| State | Qld |
| Property Type | Residential |
the broker's journey
An application was presented for refinance pending sale of an unoccupied, recently constructed luxury investment property on the Queensland Gold Coast, as being owned by a company. Its current loan with an unscrupulous private lender was about to expire, and the borrower was anxious to settle within the week to avoid default penalties being applied.
Upon further investigation, it was determined that despite not being disclosed by the borrower, the company owner was in fact a corporate trustee. Furthermore, on review of the the Trust Deed, we learnt that the majority of the units in this trust were owned by the key sponsors’ Self-Managed Superannuation Fund.
Immediately alarm bells began ringing, as whilst it is possible to lend to SMSFs, to do so within the Superannuation Industry (Supervision) Act is complex. Under the Act’s “in-house asset rules”, an SMSF is prohibited from holding more than 5% of its total assets in an in-house asset. SMSF assets must not be used to provide financial assistance to a member or their relatives, borrow money from the SMSF or use the SMSF as security for a loan.
Whilst it could be said that compliance with the SIS Act is a burden on the Borrower, there are implications under the Act for third parties who knowingly assist with SIS Act breaches. With Semper’s values of “Goodwill, Good Conscience, Good Business. Always.” it was important we ensured our lender-partners were protected and complied with the legal advice we were being given.
Thankfully, in these circumstances the borrower had previously attended to a transfer of units outside of the SMSF structure. Production of a Trust Variation Document allowed the loan to proceed as originally documented and settle 24 hours later.
lessons learnt
It is important for brokers to be aware of the complexities of lending to Trusts. If a Trust is involved, the Trustee owns the property on behalf of the Trust and its Beneficiaries. Any lender would require the participation of that Trust in their lending structure.
It is common practice in conveyancing for titles to only be registered in the name of the Trustees, and all mention of Trusts may be ignored. Similarly, Council rates notices are often issued to the party on title, not necessarily to the Trust. This can create uncertainty about the legal owner versus the owner on title.
Brokers should always ask the question of their clients – “and are there any related Trusts?”
If the borrower is uncertain about the role of their Trust, they should consult their accountants and lawyers for advice. At the time of acquisition, sale contracts will show the Trustee is the buyer holding the property as Trustee. Other ancillary documents such as financial reports, tax statements and bank statements will also show that Trust assets were used to purchase the property.
If a Trust is disclosed to the Broker, it should always be presented to the lender at the time of application, along with a copy of the Trust Deed and any Variations.
Commercial lending
Semper is a leading non-bank lender specialising in property-secured loans to businesses in any industry with loan sums from $250K – $30M 1st and 2nd mortgages Australia-wide up to a maximum LVR of 80%.
Semper offers a wide range of flexible products tailored specifically for you. We specialise in all your short-term and bridging finance needs.
We don’t do loans the banks won’t, but assist when the banks can’t, usually due to timing or circumstance.
COMMON LOAN USES
Managing cash-flow challenges, such as:
- Tax liabilities and ATO debt
- Replacement finance or deleverage from an existing lender
- Pre-insolvency issues/ release from administration and turnaround
- Creditor payments
- Release of equity
- Debt refinancing
- Seasonal trends
- Business emergencies
CAPITALISING ON AN UNEXPECTED OPPORTUNITY
- Bridging the gap between sale and purchase (residential or commercial)
- Rapid drawdown and equity release
- Buying a business
- Meeting the capital needs of a growing business
