Borrowing on the security of a Jersey property
27 May 2010
There are three ways in which a lender may take security over your Jersey property, partly depending on the method by which you own the property:
- If the property was, or is being, purchased by a contract passed before the Royal Court, conveying the whole property ("freehold"), or a unit in a property transferable under the Jersey Law of 1991 on the Co ownership of Buildings ("flying freehold unit"), then borrowing may be secured by means of either (i) a simple conventional mortgage, or (ii) a bond or acknowledgement of indebtedness registered in the Royal Court.
- If the property was, or is being, purchased by taking a transfer of some or all of the shares in a company (a "share transfer unit" or a "share transfer property"), then borrowing can only be secured by a security interest over the shares, effected by a private agreement and either a deposit of the share certificate or a transfer of shares into the lender's name.
- It is possible, in limited circumstances, to obtain a mortgage on leasehold property.
You should bear in mind the following, whichever form of security over the property is being given:
Title checks and enquiries of States departments and utility companies
The lender's lawyer generally requires a certificate as to title to the property, the existence of the relevant consents from the various States departments, the utility companies and, in the case of a company owned property, as to the good standing of the company and title to the shares. It is therefore standard practice for us to carry out a title check at the Public Registry, a property visit to check boundaries and other matters and, in the case of a security interest, a company search and inspection of the company books. In giving this certificate, we are bound to disclose any material adverse factors affecting the property, and the company and the shares in the case of a security interest.
You will be responsible for the fees incurred on enquiries carried out with the States departments and utility companies, whether or not the borrowing takes place. If you are borrowing in order to finance the purchase of the property, then the various checks and enquiries in connection with your purchase will suffice and the enquiry fees will only be incurred once.
We must satisfy the lender that the property is fully insured at the time of advancing the loan. If you already own the property or shares in question, please arrange to supply us with a copy of the insurance policy and the current schedule giving details of types and levels of cover and proof of payment of the current premium.
Power of attorney / letter of authority
Where a simple conventional mortgage is involved, it is created by a contract passed before the Royal Court on a Friday afternoon. If you do not wish to attend court in person, you may grant a power of attorney in favour of one or more of our partners or senior members of staff who will attend on your behalf. Please let us know in good time so that such document can be prepared, as you will need to sign it before an authorised witness.
In the case of a registered bond or acknowledgement of indebtedness, we normally appear on your behalf in court to acknowledge the amount being borrowed. You will have to sign a letter of authority authorising us to do this.
In the case of a security interest, there is a private agreement requiring signatures from the borrower, the lender and witnesses.
Payment of legal fees and disbursements
We need to have received from you, into our clients' account prior to completion, cleared funds equivalent to our fees, stamp duty (if any), search fees and any other disbursements which we may have incurred on your behalf, together with the lender's fees, if these are not to be retained from the loan proceeds.
You will need to instruct your bank to make a bank transfer, so as to reach our clients' account by no later than 11.00 a.m. on the date of completion. If payment is made by cheque, this must reach us four working days in advance of the completion date.
Payment of proceeds of loan
In the case of a security interest, the proceeds of the borrowing will normally be made available immediately. If the borrowing is to finance the purchase of shares, the proceeds will have to be paid to us in order that we may fulfil our obligation to the vendor's lawyer to account for the purchase price.
In the case of a simple conventional mortgage, a registered bond, or acknowledgement of indebtedness, as these forms of security are effected in court or at the States of Jersey Greffe on a Friday afternoon, it is common practice for the proceeds of the borrowing to be paid by the lender on the Tuesday following registration.
If the borrowing is to finance the purchase of a property, the funds will be paid directly to us in order that we may fulfil our obligation to the vendor's lawyer to account for the purchase price on that day. Most lenders will charge you interest on the amount borrowed from registration.
Funds which arrive in our account too late on the Tuesday for us to remit them to you or your vendor will be dealt with the next day which may involve you in having to account for a day's interest.