Every investment loan issued by Zagga is secured by a registered first mortgage over New Zealand real estate. But what does this mean, and how do we set up our loans to reduce risk for our investors?
Our Loans are Secured by Properties and Personal Guarantees
Zagga holds a first registered mortgage over any property(s) that secure our investment loans. The purpose of this security is to provide a backstop in case a borrower can’t repay their loan for any reason. Zagga then has the ability, if required, to sell the security property to recover any outstanding funds for investors in that loan. This can include any principal, interest, or penalty interest as necessary.
‘Registered’ means the mortgage is registered against the property’s title, which is the usual practice for all mortgages. ‘First’ means it has top priority. It is the primary debt on the property and takes precedence over other mortgages. It will be repaid first if the property is sold. If there was a second mortgage on the property, it would only be repaid once the first mortgage was cleared.
We also take a personal guarantee from the borrower/guarantor for that loan, which means the loan is also secured against any recoverable assets they may have (such as vehicles, businesses or other property). We set up a general security agreement (GSA) with the borrower, which is registered on the Personal Property Securities Register, so there is a public record of this security. This helps protect investors’ financial interests.
Reducing Risks for Investors
But Zagga starts looking out for our investors’ interests well before we take on a loan. We assess its suitability with rigorous due diligence. If it fits our general criteria, we then consider the borrower, the project and what will secure the loan. We look at the loan-to-value ratio (LVR), the borrower’s own financial position and background, and all the documentation to demonstrate their serviceability. We also want to see the borrower has the resources to successfully complete their project and a plan to repay the loan.
Once a loan is approved and funded on the Zagga platform, a bare trust is created which holds the individual loan, and the individual investors are set up as beneficiaries for the interest in that loan. Every loan stands alone. There is no pooling of funds, either across the business or across more than one loan. This means that if one borrower is in arrears, there is no contagion risk for other loans.
Similarly, if anything were to happen to Zagga, each loan would remain safe within its individual trust.
What Happens if a Borrower Doesn’t Meet Their Repayments?
A Zagga borrower needs to make regular repayments as set out in their loan agreement. A Zagga borrower needs to make regular repayments as set out in their loan agreement. Most borrowers elect to borrow the interest and fees, incorporating them into the overall loan structure.
However, some borrowers choose to pay the interest monthly from their own funds. If they miss a repayment and it remains unpaid after 30 days, or if they consistently fail to make repayments, their account is sent to our debt recovery team.
The first part of the recovery process is our team working with the borrower. We want to understand why they’ve missed payments and try to get them back on track.
As a last resort, we then have the option to sell the borrowers’ security property or assets. The money from the sale of the security assets would then be used towards clearing the debt.
If you have any questions about how our investment loans are secured, please get in touch, we’re here to help.