Deed of Postponement: What does it mean to postpone a mortgage?
When you are placing a second charge on a property (for example, to secure a loan), the charges, by default, each effectively move up the queue. The charges would therefore be discharged (paid off) in the order that they are or were registered on a property.
However, if you want to register a charge which will take priority over a previously registered one, you must get a deed of postponement, to confirm that the beneficiary of the previously registered charge agrees that their charge will rank behind the new one.
What is a charge?
The charge is the legal document registered against your property by a mortgage lender. It is held by the Land Registry and its purpose is to protect the lender's investment. This means that should you ever find yourself in a position to endanger that investment (i.e., missing payments), the charge allows the mortgage lender to take action to recover any financial losses.
In serious cases, this can lead to repossession and furthermore sale of the property.
What does it mean to postpone a mortgage?
This is applicable in instances where you want to register a new charge against your property, but there is already an existing one (i.e., a mortgage) registered. In order to postpone the existing one and prioritise the new charge, you will need a deed of postponement.
This means that the lender holding the already-registered charge agrees that their debt will be ranked below the new one and that any further payments will be used to clear off the now first charge's debt before theirs.
As long as there is enough equity in the property to cover all the charges, everyone still gets paid.
What is a deed of postponement?
A deed of postponement is the legal agreement between the two lenders and it is meant to emphasise what each party's rights are. It usually gives priority to the lender holding the first charge. By postponing, both lenders will still be paid, but only one will be prioritised.
It is important to know that the deed of postponement serves as a guideline for serious cases. Its contents will only come into full effect if the borrower becomes insolvent and is unable to pay off the debts, or if the property is damaged beyond repair. Insurance will be used to clear off the debt for the first charge and then for the second.
The term deed of postponement can also be used in a different setting, where it refers to the Occupier Waiver Form. That is an agreement between the mortgage lender and the resident of the property.
The resident (a non-borrower on the mortgage - often, an adult child of the property's owner) agrees to relinquish their right to occupy the property, so that the lender can repossess the property if the borrower does not keep up with their mortgage payments.
A deed of postponement may also be required when one party personally guarantees a loan to benefit another. For example, in a Director's Guarantee the money is lent to a company and the director personally guarantees the loan. In this case the Director becomes the secondary ranked lender. If a third charge were placed on the property, the Director may be required to agree to postpone their charge.
When signing a deed of postponement, you will need to get Independent Legal Advice. This is mandatory so that all parties involved fully understand the risks before signing.
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