Subdivision development finance

Hi Cheryl

There are a number of unknowns here so will try answer some questions in general terms:

Will the sale to the builder be considered presales for traditional funding? Generally no, the list of conditions for a sale to “qualify” for “traditional” funding is usually a couple of pages long. To quote directly from a Terms Sheet of one of the major banks – “No purchaser to acquire more than two units without our prior written consent”. This was obviously for a unit development but you get the idea – qualifying presales are typically limited to 2 per buyer to minimise settlement risk.

To structure with vendor finance the seller the seller will need a decent equity position in the property. Your debt funder will require 1st mortgage security over the property meaning the vendor will need to have sufficient equity to enable the repayment of their mortgagee with the funds you are able to raise. Without seeing a feasibility or knowing if and how the subdivision is planned to be staged it is hard to say what fudning will be availble from the 1st mortgagee but typically it won’t be much.

The vendor can then secure their position by a second mortgage which I can go on and on about the next round of challenges there. We have funded a few subdivisions in this structure but through “private” funders, not cheap but do take a commercial view on these funding arrangements.

Let me know if you have any more questions.

Cheers
Rhys

An option only gives the person an equitable interest in the land. The land cannot be mortgaged, unless by the owner. What about a JV with the owner of the land.

Rhys Adams wrote:

Hi Terry

My comments re granting of mortgages were based on the exercise of the option and subsequent settlement and transfer of title.

Cheers
Rhys

Yes no problem, I hadn’t even read your reply and wasn’t referring to it in my post, but that makes sense.

Why can’t the current owners raise it on the security of the property itself.

Just do it as a Nodoc Short Term Business Loan. I am assuming their is some value in the present site.

Cheers

Yours in Finance

Doesn’t have to be Nodoc if your clients can service the loan they can borrow against the existing property security.

Would be a matter of their Solicitor correcting the Title / Mortgage documents before they move forward.

Seems to be a fairly straight forward deal if these matters can be overcome.

Cheers

Yours in Finance

CharlieX wrote:

Only two siblings have their names on the mortgage papers yet the mortgage has six splits (one to each own

You need to look at the certificate of title. Rates notices have limited room and maybe all 6 owners won’t fit in. The loan may be in one name but all others may have guaranteed it.