Reviewed by Tan Chua
Private loans secured over property are common in Melbourne. A family lends to a business. An investor provides bridging finance. A borrower takes a second mortgage behind the bank.
These deals can move fast. That speed is useful, but it also creates risk. A missing document or a badly drafted guarantee can be very costly to fix later.
Chua Tan Associates acts for private lenders and for borrowers. We act only on property located in Victoria. Our clients may live anywhere in the world.
What is private lending, bridging finance and a second mortgage?
Private lending is a loan from a person, family, company or fund that is not a bank. It is often secured over land.
Bridging finance is a short-term loan. It “bridges” a gap, such as buying a new property before selling the old one, or funding a business until other money arrives.
A second mortgage is a mortgage registered behind an existing first mortgage. The second lender is usually repaid only after the first lender is paid in full.
For private lenders and investors
Many wealthy Asian families lend money to businesses or individuals in Victoria. The return can be attractive. But the loan is only as good as the security and the paperwork.
Reviewing the deal
Before any money moves, we review the proposed terms. We look at the loan amount, term, interest, default interest and repayment terms. We check whether the deal makes commercial sense against the security offered.
We also check whether consumer credit laws may apply. Lending to individuals for personal or residential purposes can trigger licensing and disclosure rules. Business-purpose loans are treated differently, but the purpose must be properly documented.
Due diligence on the borrower and the title
Good due diligence protects the lender. It usually includes:
- Searching the title to confirm who owns the land.
- Checking existing mortgages, caveats, covenants and other interests on title.
- Verifying the identity of the borrower and every guarantor.
- Company searches for corporate borrowers and directors.
- Reviewing any first mortgage terms that affect a second lender.
- Considering an independent valuation of the property.
Identity fraud over land is a real risk. Proper verification is not a formality.
Drafting and registering security
The core documents are usually a loan agreement, a mortgage, and often guarantees. A company borrower may also give security over its other assets.
A mortgage over Victorian land is registered on title. Registration is now generally completed electronically. Until registration, a lender may lodge a caveat to protect its interest.
A caveat is a warning on title. It can stop other dealings being registered without notice to the lender. However, a caveat is not the same as a registered mortgage, and it can be challenged.
Priority behind a first lender
A second lender sits behind the first lender. If the property is sold, the first lender is generally paid first. The second lender takes what is left.
Many first mortgages restrict further borrowing without the first lender’s consent. Ignoring this can put the borrower in default with the bank. In some deals, a priority agreement between lenders is needed.
Enforcement risk, in general terms
If a borrower defaults, a lender cannot simply take the property. Victorian law requires proper notices and steps before a mortgagee can sell. Mistakes in this process can delay recovery or expose the lender to claims.
Enforcement can also be slow and complex. That is why the strength of the documents at the start matters so much.
Funds from overseas
Many lenders send funds from Hong Kong, mainland China, Malaysia, Singapore or elsewhere. Banks may ask where the money came from. Australian anti-money laundering rules are also expanding.
We help lenders understand the source-of-funds questions they may face. Tax issues, such as tax on interest paid to overseas lenders, may also arise. We work with your tax adviser on these points.
For borrowers
Independent legal advice on loan terms
Many private lenders require the borrower to obtain independent legal advice before settlement. The lawyer then signs a certificate confirming the advice was given.
This is more than a signature. We explain the loan terms in plain language, in English, Mandarin or Cantonese. We point out terms that could hurt you later.
Understanding default clauses
Private loans often have strict default clauses. A late payment may trigger higher interest, extra charges, or the whole loan becoming due at once.
Default can sometimes be triggered by events you would not expect. Examples include a change in company directors, another lender’s action, or a missed reporting obligation. You should understand these before signing.
Personal guarantees by company directors
When a company borrows, lenders almost always ask directors to sign personal guarantees. This means your own assets, including your home, may be at risk if the company fails to pay.
Directors sometimes treat this as a formality. It is not. We explain what you are guaranteeing and for how long.
Family members giving guarantees
This is a key concern for Asian families. Parents guarantee a child’s business loan. A spouse guarantees a partner’s company. A sibling offers the family home as security.
A guarantor can lose their property even though they never received the money. Courts in Australia can set aside guarantees in some circumstances, but you should never rely on that.
Independent advice protects the guarantor and the family. It also helps lenders, because properly advised guarantees are harder to challenge later.
Working alongside mortgage brokers
We regularly work alongside mortgage brokers on private lending and bridging transactions. The broker arranges the funding. We handle the legal documents, title, security and advice.
Clear roles from the start help the deal settle on time. We keep the broker informed with the client’s permission.
Common concerns of Asian families
“We live overseas. Can the loan still be completed?” Yes. Most steps can be done remotely. We work across time zones, and our in-house notary public can assist with documents that need formal witnessing.
“I don’t know Australian law. How do I know the security is real?” We check the title, the borrower and the documents before funds are released. We explain each step in your language.
“The bank is asking about the source of my funds.” This is now common for money sent from overseas. We help you understand what may be asked and what records to prepare.
“My parents want to guarantee my loan. Is that safe for them?” It can expose their home and savings. They should receive separate, independent advice. This protects both family harmony and the deal itself.
“Will my family’s financial affairs stay private?” Yes. We treat every matter with discretion. We understand that privacy and face matter to our clients.
“We also need help with wills and family arrangements.” One firm can help. Loans, guarantees and property often connect to wills, estates and family law.
Illustrative example, not a real case
A family in Kuala Lumpur agrees to lend money to a Melbourne developer. The loan is to be secured by a second mortgage over a Victorian property. The developer’s directors will give personal guarantees.
Our title search shows the first mortgage restricts further security without consent. We raise this before funds move. The first lender’s consent and a priority arrangement are obtained, and the second mortgage is registered.
Why Asian families choose Chua Tan Associates
Our lawyer Tan Chua has more than three decades of experience in Victorian property law. That experience helps us identify title, security and documentation problems early.
In private lending, the real cost is not the legal work. It is an unenforceable guarantee, a lost priority, or a loan you cannot recover. Our value lies in helping you avoid those costly mistakes.
- Family firm practising since 1990, with two generations of lawyers.
- Experience with cross-border clients in Greater China and South-East Asia.
- One firm for property, wills and estates, family law and immigration.
- Services in Mandarin, Cantonese and English.
- Notary public in-house.
- Discretion and privacy in every matter.
Frequently asked questions
Do you act on property outside Victoria? No. We act only on property located in Victoria. Our clients may live in Australia or overseas.
What is the difference between a caveat and a registered mortgage? A caveat warns others of an interest in land. A registered mortgage is a formal security on title and generally gives stronger rights.
Can a second lender sell the property if the borrower defaults? It may be possible, subject to the first lender’s rights and the required legal steps. Each case depends on its documents and facts.
Do I need independent legal advice as a borrower or guarantor? Many lenders require it before settlement. Even when not required, it is strongly recommended.
Can you act for both lender and borrower? Usually not in the same deal, due to conflicts of interest. We can explain the options at the start.
Do you work with my mortgage broker? Yes. We regularly work alongside brokers to keep transactions on track.
See all our Melbourne property and conveyancing services.
Book a consultation
Whether you are lending or borrowing, early advice reduces risk. Book a paid initial consultation with our team. Clients and family overseas can join online. We provide a quote once we understand your matter.
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This article is general information only. It is not legal or tax advice, and you should not rely on it. Laws change and outcomes depend on your circumstances. Obtain advice before acting.
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