30 Year Lease

[Thailand Tiger]

I'm currently renting a house on a 12 month lease. I luv the house and could see it being a long term home. The owner of the house has some financial troubles at the moment, one of which is being about 6 months behind on the mortgage. Ideally they'd like to sell the house to resolve their financial problems.

I'd rather not buy outright as money sitting in a house in Thailand is about as useful as having it under the mattress. I'm looking at a deal to help out the owner and secure myself a place to call home, whereby I would pay a small sum for the house and have it registered in my name (this would take care of the most pressing debts...those of the 3%/mth, break your legs type). I would also register a 30 year lease with the land office for the land component of the property. I would then effectively take over the mortgage payments (20 year mortgage with 18 years remaining) which are about %65 higher than my current rent. The improved cashflow situation for the owner by not paying huge interest payments every month along with a mortgage would allow them to settle the remainder of their debts with their existing income (albeit over several years).

I see advantages all round as the owner gets out of a financial jam whilst still retaining ownership of the land and the opportunity to improve their credit rating once I pick up the mortgage payments. The advantage for me would be having existing low interest rate financing saving me from tying up capital in a non-productive investment.

My questions are;

1. Would the current encumbrance on the property (by the bank) prevent the transfer of title for the house (not the land, only the dwelling on the land)?

2. Would the current encumbrance prevent the registration of a 30 year lease at the land office?

3. In the event that the lease was put in place but the bank chose to take possession, would the lease still guarantee my leasehold possession of the property?

4. If the owner of the property is ultimately unable to resolve their financial dramas and some form of bankruptcy procedure is initiated (does such a thing exist here?) would the lease stand? (Similar situation to No 3)

5. What else have I not considered?

Thanks all.

[solo siam]

If its mortgaged then they won't even have the title deed for the property, so I think it would be impossible to get a lease drawn on it.

[lannarebirth]

Are you certain the mortgage is at a fixed rate? Most are not.

[Irene]

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My questions are;

1. Would the current encumbrance on the property (by the bank) prevent the transfer of title for the house (not the land, only the dwelling on the land)?

Yes, why should the bank modify the conditions to suit you. It is not run of the mill situation and therefore most likely the bank would reject your request.

2. Would the current encumbrance prevent the registration of a 30 year lease at the land office?

Yes, the answer is the same as (1).

3. In the event that the lease was put in place but the bank chose to take possession, would the lease still guarantee my leasehold possession of the property?

If the lease is put in place (a big big if), your right of possession is guaranteed if the lease is properly registered. That is another reason why the bank would not go along with it. Anything out of the ordinary is certain to be rejected unless the deal is a big one or the borrower is an influential person.

4. If the owner of the property is ultimately unable to resolve their financial dramas and some form of bankruptcy procedure is initiated (does such a thing exist here?) would the lease stand? (Similar situation to No 3)

Similar answer to (3). First the bank has to foreclose the property to realise its debt. If the proceed is not sufficient to meet the debt and related interest, then they would go after the debtor personally. If the debtor has no asset then there would a bankruptcy procedure against the debtor.

5. What else have I not considered?

Your alternative is to pay rental in advance under a new lease for a period of 3 years to help out at the interim the owner to meet the obligations of meeting the bank's loans and guarantee your possession for that period. (The whole procedure should be drafted and reviewed by your lawyer to ensure that there is no loophole). The payments should be seen by you as having been paid to the bank in order to avoid any foreclosure proceeding while you are an occupier. The lease could be spelt out as renewable for another 3 year period at your option at a specific rental amount. At least, you can be assured of 6 year occupation of the house you like.

Thanks all.

[ProThaiExpat]

I agree that since the bank most likely has the mortgage and I can't believe they don't have a provision in the mortgage forbidding assignment of the mortgage without their consent.

However, if the owner has a straight mortgage on the property, I doubt the mortgage instrument would forbid him leasing the property, as long as he remains liable on the mortgage. If the mortgage requires owner occupancy, then there is no hope.

On the other hand, I doubt if the length of any lease on the premises is controlled by the mortgage document, so perhaps an unrecorded lease of the premises with a first right of refusal to purchase, in the event the owner ever finds a buyer wiling to assume the mortgage and the bank is inclined to consent, might do the trick.

Granted you wouldn't be as secure as with a recorded lease, but on the other hand, making the mortgage payments directly to the bank as a means of paying your rent, could only make the bank happy, if your timely on your payments and bring the guy up to date in the process.

The bank doesn't lose its security interest, you have a contractual right of possession as long as you make the mortgage payments and the only thing problematic is the term of the rental contract.

Consult an attorney of repute and float your ideas before him. I am confident you can make a legal and enforceable deal, perhaps not recorded. Perhaps the bank might consent to a 30 year lease being recorded as long as their mortgage remains in first position and the entire transaction is above board.

There are many legal and enforceable means of tying up property through contract that keeps the owner from impairing your right of quiet possession during the term of your lease or rental.

Good luck.

[solo siam]

The Mortgage holder will have possession of the Chanote or other land title, so isn't it impossible to register any sort of lease on the land title, if teh lease is not registered it means absolutely nothing.

[Irene]

The Mortgage holder will have possession of the Chanote or other land title, so isn't it impossible to register any sort of lease on the land title, if teh lease is not registered it means absolutely nothing.

You are right. A 30-year lease would definitely require the consent of the bank who has the original chanote. But if it is a 3-year lease with a renewal option of another 3 years, no registration is required and the owner can rent out without the banker's consent. Most leases of immovable property are under this 3-year basis to avoid the registration fees of 1% of the total rental value.

[Thailand Tiger]

Thanks for your advice thus far folks. I'm working on getting together some more information about exactly what the bank holds.

I'm not too comfortable with the idea of a 3 year lease as any money I spend on improving the property would be lost. I have ideas about adding a pool and redesigning some parts of the house.