Brother lent mother money to buy her house, now says he has a charge on property

[sheena11]

Hi, I hope you can advise me.

 

13 years ago my mum-in-law wanted to move back to this area but did not have enough money to buy a house. My brother-in-law took out a loan for £15,000 and lent it to her. There are 4 sons (including my husband). She said to us at the time and a few times over the years that it had been arranged that my brother-in-law would receive the money back with interest to make sure that he did not lose out. She said that this had been done legally and she had signed papers to this effect. My mum-in-law was 73 when this was done.

 

My mum-in-law died 10 days ago and we have just learned from my brother-in-law that he will be repaid from the estate, including the money lent, every loan payment that has been made PLUS he will receive 28% of the increase in value of the house - the capital gains I think he called it - because the £15,000 represented 28% of the purchase price of the house 13 years ago.

 

Now I know that my brother-in-law could easily have made overpayments on this loan and it could have been repaid years ago (the loan is for a term of 20 years) but he has not - well, why should he when he will get every penny back anyway. The only people who lose out are his 3 brothers.

 

The house cost £53,000 and I estimate the value now would be approx £153,000.

 

So from what I can tell, when the house is sold he will be repaid the £15,000 plus every loan payment he has made (I think he said £120 a month for 13 years). He will then also be entitled to this 28%.

 

My questions, if you can possibly advise are these:

 

Would a solicitor have advised this as a normal way to deal with the loan repayment?

 

Am I right in thinking that if the property has increased in value by £100,000, then he would be entitled to £28,000 and then the £15,000 and all the loan repayments?

 

Should he be entitled only to the loan interest to be repaid (bearing in mind that the payments have included repaying part of the capital)?

 

As I'm sure you understand, as a very rough calculation it would appear that my brother-in-law is going to receive at least £75,000 while his 3 brothers receive approx £25,000 each from his mother's estate.

 

While I absolutely agree that my brother-in-law should not lose out in any way financially by loaning this amount to his mother, it seems very unfair that he should gain so much from the increase in the house value, bearing in mind that he is not listed as a part owner of the house and has not had to contribute to household expenses during the 13 years my mum-in-law lived there.

[rebel11]

Hi sheena

 

Welcome to CAG

 

The guys will be happy to advise as soon as they are available.

[sheena11]

Is there nobody who can offer me any advice on this, please?

 

Even if no-one can answer any of the questions above, does anyone know how I can get to see this charge - should it be with the will, or the deeds of the house? Will the local Land Charges department have details?

[MrShed]

I would have said that this will depend upon the terms of the loan contract initially signed.

 

It sounds (to me) like he is chancing his arm somewhat. I would have considered it unlikely (although not impossible) that the contract contains reference to the capital gain on the property. For him to see this value, it would have been more likely that rather than be a loan per se, that he effectively "bought" 28% of the property at purchase time.

 

The absolute key here is the contract, and you need to get sight of it.

[sev67]

Sounds like he's copied the principal of a SAM mortgage (shared appreciation mortgage). Do an internet search and you'll find info. I think they are supposed to be interest free loans, where the amount borrowed is only repayed on the sale of the house, so no monthly payments or interest charged at all. They were offered to pensioners that had no income to repay. On that basis he would probably be entitled to the original money back, plus the appreciation which you say is 28%, but I don't see why he should also be getting the monthly capital and interest payments back on the loan too (he has probably offset all of the repayments against tax already). Sounds like he wants it both ways, even the banks weren't that bad. I would say Unfair terms perhaps so look at that too. Sorry I'm no expert just what I've picked up. Good luck.

Edited July 19, 2011 by sev67

[MrShed]

I am not sure unfair terms will apply in the case of a contract between two private individuals?

[toddle2u]

If the terms he has stated are what is in the contract then I can't see where you can go with this because as mentioned previoulsy it was between two private individuals. You can downlaod a copy of the charge from the Land Registry website which costs £8. If all the sons had chipped in at the time to make up the £15K they would now all be getting an equal share. They didn't one of them did and did it on a commercial basis and is now reaping the rewards. Can't see the problem myself

[sheena11]

If all the sons had chipped in at the time to make up the £15K they would now all be getting an equal share.

 

Unfortunately none of the other sons had the money or could have raised a loan to chip in.

 

They didn't one of them did and did it on a commercial basis and is now reaping the rewards. Can't see the problem myself

 

The commercial basis is the problem, as far as we are concerned, and the fact that this was kept secret until after mother-in-law died. At 73, I doubt very much that she would have understood the implications for her other sons when she agreed to this, I believe that she thought that her son would be repaid in full so that he did not lose out financially - this is what she said at the time and at odd times over the years since.

 

It is irrelevant I know, but the son who lent the money is the youngest, he and his wife have always been in a much better financial position than any of the other 3. Two of his brothers are already pensioners (including my husband) and they are all on good terms, which is what makes it so difficult to accept that he would regard this as an investment from which he will reap a profit when it is so much to the detriment of his family (he and his wife have no children).

[MrShed]

The legal position to my mind is quite simple. The contract itself, whatever it may be, can be enforced. As I say, you need to get sight of the contract.

 

Whether your mother in law knew the implications or not is, unfortunately, irrelevant - she had a responsibility to ensure she was aware of the implications of the contract before she agreed and signed it.

 

I think one thing that you need to be aware of is that this was your MILs asset and money, not the "inheritance" of the rest of the children. Fair or not, she, at the time of signing the contract, had the right to do with it as she wished.

[sev67]

In my opinion people hard faced enough to take advantage of others are hard faced enough to take criticism and people standing up to them - its hard but you have to do it and then you might find you can have a reasonable conversation with him. Ask him nicely for a copy of the agreement. Then if its as he says remind him nicely that he's taken advantage and its an unfair agreement to your mum-in-law (without getting into legality of unfair terms contract - just ethically unfair). As a point of negotation or reasonableness explain you agree to the appreciation (28%) and his original loan back as that is the same as a SAM mortgage (on your numbers £57840) but that you don't agreed to him also getting back his loan repayments as that is the bit that is unfair and really has nothing to do with your mum-in-law who could have got a better deal from the bank - he has to acknowledge that.

 

You never know once you start speaking openly you might find you misunderstood what he mean't or he simply recognises that a compromise is what is needed that still leaves his investment very much in tact and the family together. Good luck.