Another one to file under you have almost no chance of getting approved when you walk in the door of your local bank!
I have a lovely gent buying a new property right now which has an unusual designation, instead of standard torrens title (most homes) or strata title (most townhouses or units etc) its “Company title”… what does this mean exactly?
Well, company title means you effectively buy into a company which happens as it’s sole purpose, to own a property, of which you will receive an entitlement. And if the constitution of the company is straight forward and there are no special clauses this is no big deal at all. It turns out that this particular council prefers subdivisions of this size and nature to be company title over strata. Perhaps it gets around the issue of strata fees and managers and insurances. It might just be a good idea.
Here’s where it gets interesting (and luckily this doesn’t apply in this case), sometimes the constitution of the company says “the board has the right to approve any and all purchasers”, so you have to be approved to purchase into that development. This is actually pretty common with company title, hence it raises a red flag.
Now why would you do this? Well sadly its often about inclusion – or exclusion – lets use a silly example. Lets say the company decrees it will only approve purchasers of a particular religion, or persuasion. The discretion is completely there to exclude someone who does not meet that criteria.
As a purchaser, you need to be very careful around this, as, it may really limit the people who can buy the property from you in future, when you’re ready to sell (or worse, when you need to sell.)
As a lender, and lets say the board really likes the current owner, they can make it very difficult for a lender to sell this property in the even that you stop making your repayments. Even if this is not the case you are still limited in the number of prospective purchasers and this is something that make lenders very nervous.
Expect that they will limit the amount you can borrow for this type of property, or may exclude it altogether. It helps to know who will and who won’t. We really don’t see a lot of these either, so it’s possible the bank staff won’t actually know what to do with it and may not pick up the issue in time. In my career this is only the second I have seen, very uncommon.
Luckily this gorgeous home has an open minded lender.