When obtaining a mortgage/loan there are often circumstances requiring a solicitor to certify that the borrower/guarantor has been made aware of all the risks and future financial implications.
ILA’s are most commonly used when a property is occupied by more than one person but not owned jointly. In this case the lender will require a document that waives the rights of the occupier who is not on the title deeds.
This is to ensure that the lender’s rights are not interfered with, should mortgage payments fall into arrears and repossession be necessary.
Common reference vocabulary by the lender.
Equity in a property is defined by market value less the amount of outstanding mortgage. ILA’s are required when there is change to the mortgage/ownership of the property.
An example of this, would be the transfer of equity into joint names as a result of marriage. Alternatively there may be a need to transfer equity from joint to sole ownership. Gifts may be made between family members.
There are circumstances where the borrower is different to the person offering the lender security. An example of this is where a parent helps a child buy their first home. In this case, the parent may not be on the title deeds and therefore not directly benefit from the loan.
ILA’s are required to ensure there has been no “undue influence” where pressure is applied say from one family member to another to persuade them to do something to their benefit but to the detriment of the other.
Commercial loans and corporate finance may require a director to give a personal guarantee. This may be to secure a bank loan, an overdraft facility or a hire purchase/lease agreement.
ILA’s are necessary to make the director fully aware of all the financial risks associated with being personally liable for the money borrowed.
There may be a time when a house comes on the market or a business proposition becomes available and short term funding is needed quickly. Bridging loans are available typically for a 6-12 month period at a high rate of interest, when high street banks are not able to help within the timescales.
ILA’s are needed as assets such as property will be used as security against the loan advance. The financial implications and their associated risks need to be fully explained to the borrower by a solicitor.
Equity release is a financial product offered to people approaching retirement age that would like to turn the equity in their property into capital. This enables them to be able to stay in their home and not have to downscale.
The borrower receives a lump sum secured by a mortgage over their property. Interest accrues and is added to the loan balance.
ILA’s for this type of transaction are mandatory.