Property in Trust and Mortgages

Where we have a client whose property is in mortgage, it is possible to transfer it, BUT NOT as we would if there were no mortgage (i.e. normally we would transfer a property to a client’s Trustees, thereby taking the legal estate out of their name).

Instead, with a client whose property is in mortgage, we register a restriction on their title referencing the Trust. Usually we would couple this with a Declaration of Trust setting out the position and confirming that the client will transfer the property to their Trustees, or as their Trustees may direct, when they are in a position to do so (which will usually mean when the mortgage is repaid).

The existing mortgagee cannot object to the registration of such a restriction as it does not prejudice their rights in any way. However, once the restriction is on the title, it means the Trustees may mortgage or remortgage. Under the standard Property Probate Trust (PPT) we use, the Trustees may also borrow (Second schedule clause 14).

There is no reason why a property in such a Trust cannot be mortgaged or remortgaged. Also there is no reason why a further advance could not be granted under a mortgage already in existence of a property subsequently put into Trust.

How lenders will view it though is a different matter - most we suspect will decline a remortgage or advance because they don't understand or perceive a different risk to the norm (i.e. legal estate held by parties not in possession).

As we see it though, if the legal formalities were all correctly dealt with, then property in Trust should represent perfectly good security.