One of the first questions usually asked when searching for advice on Trust Deeds in Scotland is “will the property I live in be affected?” In particular homeowners want to know “will I lose my home?”
You may have spent decades paying a mortgage and keeping your home in good repair only to see one financial blip effectively threaten everything you’ve worked so hard for.
Alternatively you may be living in rented accommodation and have built up a good relationship with your landlord – how will they react if they find out you’ve been obtaining debt advice?
Hopefully this article will answer some of the most common questions about how Trust Deeds affect property assets, both yours and other people’s.
I Live In Rented Accommodation – Does The Landlord Need To Know If I Enter Into A Trust Deed Arrangement?
Landlords do not have to know anything about their tenants arranging or seeking any form of debt advice and you are not obliged to tell them, but be aware that if you move to another property and a credit check is done (some rental agencies insist on one for all tenants), you will almost certainly not pass.
I Live With My Parents – Is Their Property Be Taken Into Account If I Enter Into A Trust Deed?
Not at all. The assets of others are only taken into account in arrangement if they agree to it. There are no automatic rights over the assets of others you live with – the Trust Deed is based on your assets only unless others volunteer to help you.
What Options Does A Homeowner Have?
With unprotected Trust Deeds in Scotland, if you are a homeowner you do not have to transfer your property to your Trustee and can request it is not part of the agreement with your creditors. However, your creditors may not like this, especially if you have equity in your property that could be released to pay off your debt, and could refuse to agree to the arrangement.
Once the arrangement achieve the status of being protected (a procedure your Trustee will take care of), your creditors cannot chase you for money and must deal only with your Trustee. However, you have to transfer your property to your Trustee who will decide what action will be taken with it to best pay your creditors.
How Does A Trustee Use A Property To Pay Creditors?
Your Trustee may have a policy of having property valued at the beginning of any arrangements they arrange, and will then propose a sum of equity be paid at the end of your Trust Deed. This sum is based on a mortgage redemption figure which your bank provides.
When your Trust Deed finishes, you could remortgage or sell your property to obtain the money owed or alternatively some Trustees allow additional payment periods to cover this sum. They may also accept a cash payment from a family member.
What If I’m Not The Sole Owner Of The Property?
If property is jointly owned, a Trustee will need the permission of any other owners as well as those who have rights to live in the property before putting any formal arrangements in place. They have the power to force the sale through the courts if your co-owner(s) refuse.
Once a ‘division and sale’ has been granted, the Trustee will sell the property and give the other owner(s) their share of the proceeds. You share will be used to pay your creditors.
What if I Have A Second Property? Will I Have To Sell That?
Not necessarily. Whether or not your second property is in the UK or abroad, if there is a certain level of equity present your creditors may require it to be released at the end of the Trust Deed to pay them.
Will I Lose My Home If I Enter Into A Trust Deed?
It is a very rare occurrence for a trustee to ask a Sheriff to step in and grant them permission to sell the debtor’s home, as a compromise can usually be found between the house occupants and the Trustees long before this. However when it does happen the sheriff it is by no means done deal that you will lose your home.
The Sheriff has to spend some time considering the circumstances surrounding the case and take into consideration the needs and financial resources of everyone involved except the debtor. If it would cause considerable hardship to the spouse, civil partner, former spouse or former civil partner they may decide against it. Additionally, the length of time the occupants have been living in the house and the interests of the creditors will be considered.
Do I Still Have To Transfer The Property To The Trustee If There Is Little Of No Equity In The Property I Own?
If you are in negative equity or the equity you do have is too little to be released (usually less than £5,000, which would be swallowed up in selling fees), your Trustee will still require the transfer of the property to their administration.
Sometimes property is worth more at end of the Trust Deed than at the beginning, and your Trustee could have a valuation performed at the end of the term to calculate if some equity can then be released.
However, it is also possible to buy out the Trustee’s interest in the property with a one-off payment, which can be paid by you or a third party. It is also permitted to add this sum into arrangement for payment along with other unsecured debts.
Can the Trustee Come Back And Demand Any Equity Increase Be Released If They Have Been Bought Out Of Their Interest?
Your property is fully protected once the Trustee has been bought out and they cannot later request equity be released if it has increased in value.
Is It True I Could Get Rid Of Mortgage Debt And Still Stay In The Property After Using A Trust Deed?
As nice as this sounds, no! Only unsecured debts may be included. Secured debt and mortgage debt is excluded because if you default secured creditors can recover the money lent to you in the form of the asset they have a charge on.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here