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kmslaw
kmslaw, Solicitor
Category: Australia Law
Satisfied Customers: 195
Experience:  I have 15 years legal experience behind me and I graduated from the University of Sydney with First Class Honours in Arts/Law.
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I am looking to lend money to a friend who will be using it

Customer Question

I am looking to lend money to a friend who will be using it to develop a block of land and will pay me back with interest upon sale. What should I ensure is in the contract to ensure that I am protected against the risk of losing my money?
Submitted: 1 year ago.
Category: Australia Law
Customer: replied 1 year ago.
The loan contract is to be between myself and the pty ltd company in which he is director and is carrying out the development. My role is to be a silent investor. I do not know how many assets this company contains or the structure of the business however I do know there are a few companies and possibly a trust under his control. He requires the extra cash because a silent investor has withdrawn from the project, and also bank valuation has yielded less capital that was required. Currently he will also need to contribute a similar amount of money as I am currently offering to begin construction, this is on top of the sum of money already invested by him in purchasing the property and depositing on the construction loan.
Expert:  kmslaw replied 1 year ago.

Hello my name is***** am a solicitor in NSW and I am going to help you with your inquiry today.

You basically need the contract to be a mortgage document registered against the title with terms in it that specify that the mortgage will only be paid out if the principal sum plus the interest you require is paid out. It needs to be registered against the title to the property to protect your interests.

Does that help you with your inquiry today?

Customer: replied 1 year ago.
Ok that is an option I hadn't considered and one I don't think will fly with my friend. Does this involve any additional costs such as stamp duty? Also how does the existing mortgage held by the bank against the property affected? Is the contract in it's current form (promissory note) adequate (also it doesn't state a time, payback is based on sales of properties) or are there avenues in which repayment can be avoided and what exactly are these?
Expert:  kmslaw replied 1 year ago.

Hello. Apologies for being late with my reply but I am heavily drowning in Supreme Court litigation.

I would be happy to look into whether stamp duty was payable on the mortgage for you. I'm not understanding your question though in your third sentence, it seems to be missing some words?? You did not mention a promissory note before but you've really got no chance of being paid out unless you have a security such as a mortgage against the property or a caveat, otherwise you'll have to sue them to get your money for just a promissory note.

I'd be happy to look into stamp duty for you but it will take extra time. So I will offer you a further service for this.

If you clarify your third sentence I will also deal with that.

Customer: replied 1 year ago.
Hi thanks for the answer, I'm not clear on the offer to look into whether stamp duty was payable on the mortgage or not? Can you clarify what this means? I'm unable to make a decision on this at the present time.Sorry the sentence should read "Also how is the existing mortgage held by the bank against the property affected?" I ask this because there is an interest against the property already by a bank to I believe 80% ratio. I would like further clarification on what is involved with registering the contract as a mortgage against the title to discuss this process with my friend.You have mentioned it is not advisable to proceed with just a promissory note due to the fact that if re-payment doesn't happen then I will need to sue. In this case, if the corporate structure is setup for asset protection recovering funds should be difficult or impossible, is this the reasoning for your answer?You have mentioned that I should specify that the mortgage will only be paid out if the principal sum plus the interest you require is paid out. What if the mortgage is retained after the project? Then there is no requirement to repay me and my funds would be locked away in the project indefinitely. Are there other options with regards ***** ***** which will give a firmer timeframe for repayment?
Expert:  kmslaw replied 1 year ago.

I need to look at the Duties Act to see if stamp duty is required. You can put into the mortgage that the principal plus interest will be repayable after a certain time, for example when the contract is finished for the project. A promissory note may be not enough as it may not have collateral attached to it. You will have to attach a copy of the promissory note here for me to look at to determine that. A second mortgage would be second priority to the mortgage that is currently on the title to the property. So it would be paid before your mortgage was and if money is short then you will suffer short payment. Sorry beyond this you will have to accept the additional offer as there have been more questions.

Expert:  kmslaw replied 1 year ago.

Sorry I mean more questions and it takes me a lot more time to answer them.

Expert:  kmslaw replied 1 year ago.

Thanks.

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