Hi Jeff Di Lorenzo from The Mortgage Group Canada Inc. here to talk about Inter Alia Mortgages. Now I have done a blog in the past regarding Inter Alia mortgages and just the other day I had someone come across my article online and they had some questions regarding their situation with an inter alia mortgage.
Clients had a very valuable Ski Resort property that was for sale and a conventional 1st mortgage at 50% loan to value. They had a multi million dollar house & farm with a Private Mortgage also at 50% LTV. The Private Lender took a 1st mortgage on the Farm property & Inter Alia the Ski Hill property with a 2nd Mortgage.
The question to me was if they could sell a property with an Inter Alia charge on it? They did use a Mortgage Broker to arrange this mortgage loan a few months back with the intention of selling this Ski Hill property. This is something that should have been negotiated at the time of arranging the mortgage transaction. I told them to review the mortgage contract to see if it was listed in the offer.
If it was not listed in the mortgage documents what would the probability of a sale be?
To estimate the likelihood of this I asked what rate of interest was on House & Farm 1st Mortgage, she stated 11%. Now this might seem like a high rate but it is within a point or two of market: (of course not knowing what the cost of arranging the financing leaves me to only assume it was market.)
With this information I could suggest to the caller that prior to the Ski Resort property selling that they should be able to negotiate with the lender to release the Inter Alia charge. Now they would have to come to some agreement prior to the sale to insure closing happens on time. The lender could release the Ski Resort property entirely due to the rate & security on the Farm property seemingly being strong enough to stand on its own. The lender also may require a portion of the sales proceeds to pay down the LTV (Loan to Value) of the farm property.
At times Inter Alia mortgages are there to help bridge someone who is equity rich but cash poor. It allows people to use added security to transition wealth from one area to another. When considering an Inter Alia mortgage you must think beyond the original transaction. In this case there are many working parts that should have been negotiated prior to signing the mortgage transaction. By not doing this ahead of time it could significantly change the cost of borrowing to a client. I believe the lender will allow a release of the Ski Hill Property but may still want a portion of the proceeds of the sale to pay down the LTV on the farm.