1. What is the difference between Joint Ownership and ownership as Tenants in Common?
These are two types of ownership of a property. In case of joint tenancy, the ownership of property will automatically transfer to the other owner/s if one of the joint owners dies irrespective of what his/her will states. Normally, the properties among husband and wife are owned jointly. It means on the title of property, the individual shares are not mentioned. Normally we will say that property is owned in 50:50 partnership, but it is not the case.
It is in case of Tenants in Common, that individual shares of the owners are defined. On the title, it will show as ½ share of say X and ½ share of say Y. In case of this type of ownership, the share of one person will not transfer to other if he/she dies. It will go to his/her legal heirs in accordance with law (in case there is no Will); otherwise it will go according to your Will, if a valid Will is there. Normally if you buy a property jointly with say your friend or business partner, you will find that your solicitor has done the ownership rightly as tenants in common and the title shows your individual shares.
2. My mortgage is $345000, but the loan documents I have signed with bank show the priority amount as $550000. Can you please explain to me what this priority amount is?
Let’s take an example: You have taken a mortgage of $345000 today. The total amount outstanding against you can go up in future. It can be that you take a top up and borrow more or it can be, say that you are unable to pay your mortgage and it goes in arrears and the expenses, interest of the lender start to accrue and get added to loan. In the mean time, say you have taken another loan from some other financial institution and that institution has got second mortgage over the property, first charge being of your bank.
Now, you are unable to come up with payment and clear the arrears of loan and the lender takes your property to mortgagee sale.
There are competing claims against your house between your bank and the second financial institution. You owe to bank, together with default interest, penalties, legal fees incurred by bank, say $570000, you owe to second lender $35000 in total. The property is sold forcibly and the net sale proceeds are $580000 (for example). In this scenario, your bank will get $550000 as they have got priority up to this amount. They will have to compete with other creditors for rest of the amount.
Normally, the lending institutions safeguard their positions and that is the reason, priority amounts are set at higher amount. For you, as a borrower, it has got no adverse effect as the bank cannot ask for more than what is due to them on any date. If you owe to them as in your case, $345000, you will need to pay $345000 only.
Ravi Mehta is an Auckland based Financial Advisor and can be contacted on email@example.com
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