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Post by mrflibble on May 15, 2018 10:34:32 GMT
A thought has just crossed my mind, and I'm intrigued to know how the P2P platforms handle it.
Consider a property development to build, say, 10 houses. The P2P platform takes a first charge against the property as security.
What happens when the finished properties come to be sold? Presumably the don't all get sold at once, so each property will get sold individually to the buyer. The buyer isn't going to accept the purchase of the building if it still has a charge on it (and could get repossessed if the developer defaults), so the P2P platform will have to relinquish its charge on the sold property.
I presume there is then scope for the developer to keep (at least temporarily) the funds raised from the sale of the first property (as working capital for completing the remaining properties), but as each property gets sold, the value of the assets covered by the P2P platform's first charge diminishes.
Is there scope here to end up at the end of the project with no remaining money and very little controlled assets?
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copacetic
Member of DD Central
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Post by copacetic on May 15, 2018 12:13:24 GMT
It's something that will differ for individual loans.
The legal structure of the charge over the development is likely charges over individual plots/units which can be marked satisfied as and when they are sold. The money for the sale goes to the solicitor who then sends it to the charge holder (possibly less any direct legal/selling fees depending on the loan agreement). There may also be further security such as a debenture over the development company but often there is very little else of value in the company that could be recovered from this in the event of a default.
The LTV of a development loan varies significantly throughout the project and sale price of individual units is only one risk factor. In theory it should be monitored by IMS reports but platforms rarely seem to publish these so investors are left in the dark and can get nasty surprises (see eg. Lendy DFL001 and FS Whitehaven). It's therefore up to the platform to closely monitor development loans and track records in this area are not always up to scratch.
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