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How Trust Deeds in Scotland affect property assets...

f the first thing you think of when considering Trust Deeds in Scotland is “how will the property I live in be affected?” you’re not alone. In fact, if you are a homeowner you may even have that niggling thought in the back of your mind “could I lose my home?” If you own your own home, you’ve probably spent years paying a mortgage, countless weekends and holidays keeping the property in good repair and then just one financial blip threatens everything. If you rent a property how will your landlord react if they find out you’ve obtained advice on Trust Deeds in Scotland? It’s not easy building up a good relationship with your landlord and this could ruin it. This article answers the most common questions you may have about how Trust Deeds affect property assets, both yours and that of other people who you may live with or rent from.

Does my landlord need to know if I enter into a payment plan involving Trust Deeds in Scotland?

Your landlord does not have to be told anything about you arranging or seeking advice on Scottish Trust Deeds, and you do not have to tell them unless it expressly requests that you do in your rental agreement. However should you decide to move to another property and your prospective rental agency requires a credit check to be done, you trust Deed will mean you almost certainly will not pass.

If I live with my parents, will their property be automatically taken into account when arranging Trust Deeds in Scotland?

No. There are no automatic rights over the assets of others you live with unless you part-own the property with them, so if your parent’s property is owned entirely by them it will not be taken into account. The Trust Deed is based on your assets only unless others volunteer to help you.

As a homeowner, what choices do I have if entering into an agreement involving Trust Deeds in Scotland?

There are two basic choices for homeowners. If you have unprotected Trust Deeds in Scotland, you do not have to transfer your property to your Trustee. In fact, you can request that it not be part of the agreement with your creditors, but beware! Your creditors may not like this, especially if you have equity that could be released to pay off your debt, and they could refuse to agree to your Trust Deed and then petition for your sequestration.

The second choice is making sure that any Scottish Trust Deed you have is protected (a procedure your Insolvency Practitioner (IP) will take care of) so your creditors cannot chase you for money. They can only deal with your IP. However, there is a trade off for this - you have to transfer your property to your IP who will decide whether how best to use the property – if at all – to settle some of your debt with your creditors.

How will my property be used to pay creditors?

If you’re a homeowner, an IP will have your property valued as a standard practice at the beginning of any Trust Deeds in Scotland they arrange. If you have enough equity, they will calculate an amount that should be paid to your creditors based on a redemption figure from your mortgage lender. This figure could be due straight away or could be held off until the end of the Trust Deed, although the property may have to undergo another valuation if its value has risen during this time.

What if the property is jointly owned?

If you are not the sole owner of the property, your IP will want to get the permission of any other owners before arranging any Trust Deeds in Scotland. They will also require the permission of those who have rights to live in the property. If one of the co-owners refuses, your IP can force a ‘division and sale’ through the court where the property is sold and the other owners are given their share of the sale proceeds. Your creditors will then receive your share.

What if I have a second property?

Whether or not your second property will have to be sold is dependent on the discretion of your IP and the amount of equity present. However, if you do have a substantial amount of equity in a second property it is very likely your IP will require it to be sold as part of the Trust Deed agreement.

What if there is little or no equity in the property I own?

Even if you have little (usually less than £5,000) or no equity in your property your IP will still want to transfer your property to their administration. This is because property has often increased in value at the end of your Trust Deed than at the beginning. If you don’t want this to happen, it is possible to use a one-off payment to buy out the IP’s interest in the property, which could be paid by you or by a friend or family member. You can also add this sum to your Trust Deed in Scotland for payment every month along with other unsecured debts, which can be paid by you or a third party.

What if the Trustee is bought out and then comes back at the end and wants more equity?

An interest buy out will protect you from this happening because it is illegal for a Trustee to come back and request more money when they have already been properly compensated and your creditors paid.

I heard I could add my mortgage debt into Trust Deed in Scotland and still get to stay in the property afterwards

That would be nice, but no you cannot do this! Mortgage debt is a secured debt and only unsecured debts may be included in a Scottish Trust Deed. This is because you do not own the asset outright. Your lender owns part of the property until you pay off the mortgage and can repossess it to claim back the money they lent you to buy it if you default on your payments.

For this reason hire purchase debt for things such as cars, white goods and consumer goods are also excluded.

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