Can I trust a deed of trust?

A Deed of Trust, also known as a Declaration of Trust, is a legal agreement that can be used to specify how joint owners hold property.

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Specific information can also be incorporated into the deed such as each owner’s contribution towards the purchase price, their respective shares in the property and each person’s responsibility. You can also draft a deed where one party becomes sole beneficial owner.

A few examples where this could be of benefit:

  1. Joint ownership of a property where one party doesn’t have a sufficient credit rating to obtain a mortgage.
  2. As a tax planning tool to introduce properties into a tax saving vehicle such as an LLP or Ltd Company.
  3. Buying property jointly with unequal contribution to the price.
  4. Buying out a joint owner of a property without the need to remortgage
  5. Protecting your investment when contributing towards a property purchase.

One question that frequently crops up is, do I need to inform my mortgage lender? This is a tricky area and needs to be reviewed case by case.

However, if you or another party to the deed of trust already own the property and you enter into a deed of trust to regulate an arrangement there is usually no reason to inform your mortgage lender. This is because their security is protected by virtue of a first legal charge over the property. In practice this means that if the property owner were to default in repaying the mortgage (or otherwise breach their mortgage conditions) the mortgage company could commence repossession proceedings and ultimately recover the property and sell it on the open market to recoup their loan.

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