It has to be accounted for before the deed can finish, either by excluding the property under section 166 or by agreeing under section 175 that the trustee will not realise it. Whether you will lose your home in a trust deed deals with the risk to the house itself.

This page deals with the money in it. Here is how the figure is built, when it is fixed, what the freeze costs you and what breaks it.

A current open market value of the property, less a current redemption figure from every secured lender, and then only your own share of what is left.

The valuation basis matters as much as the number

For a section 175 agreement, AiB’s guidance for trustees expects a current RICS Red Book open market valuation rather than a forced sale or compressed timeframe basis.

A forced sale figure would be lower, and a lower figure would suit a debtor trying to keep a property cheaply. The open market basis closes that door in both directions.

The inputs, and where each comes from

Second charges are the line people forget. A further secured loan comes off before any equity exists, and how much a trust deed costs in Scotland covers what then comes out of the money that is realised.

On the day you grant the trust deed. Section 175(3) requires the payments under a section 175 agreement to be determined in accordance with a valuation of your heritable estate as at the date of grant, made by a chartered surveyor or other qualified third party.

Why that subsection is the whole answer

Frozen equity is usually described as something a trustee agrees to. Section 175(3) puts the valuation date in the statute, in force since 30 November 2016, so the freeze is a legal feature of the mechanism rather than a favour.

The consequence is worth saying plainly. A rising market during your four years does not increase what you have to pay under a properly recorded agreement.

What it does not do

It does not fix the equity for every purpose. If the property is actually sold, the estate deals with what the sale realises, which is the point of the next section but one.

Nor does it put a clock on the trustee’s interest. There is no three year reinvestment rule in a trust deed, and whether you will lose your home in a trust deed explains why.

Pay an amount the trustee determines by a date the trustee determines, or pay a monthly amount for a determined period, or both, and co-operate with the administration of the trust.

The three conditions

Section 175(2) sets them out, and the monthly limb carries a sting: where there is a contribution from income, that period follows the payment period under section 168(2) rather than running alongside it.

In plain terms, the monthly payments for the house can start when the ordinary four years of contributions end. Ask for the projected finish date of both before you agree anything.

What the trustee gives in return

Section 175(1) lets the trustee agree not to realise specified heritable estate, relinquish their interest in it, and recall a notice of inhibition recorded under schedule 4 paragraph 3.

The agreement goes on Form 1B. Section 175(5) requires a copy to go to AiB and to every known creditor other than a secured creditor excluded under section 166.

What the trustee has to tell creditors

• The rationale for not pursuing the full equity.
• Any re-mortgaging plan, and its timing.
• The proposed contribution amount and how long it runs.
• A comparison of the dividend from realising the equity against extended contributions.

That list is AiB’s, and it is a useful check on the deal you are being offered. If your trustee has to justify it to creditors, you are entitled to see the reasoning too.

A breach or a sale. Section 175(4) lets the trustee withdraw from the agreement if you fail to fulfil a condition, and on a sale the trust estate receives the full equity realised regardless of the figure agreed earlier.

The freeze and what breaks it

That last row in AiB’s guidance is the one to read twice. The frozen number is a benefit of complying, not a ceiling on what the estate can ever take, and what happens if your trust deed fails covers where a breach leads.

Two things that are not breaches

AiB lists grounds that are not proper reasons to refuse a debtor’s discharge. Two of them matter here: a change of circumstances that prevents you paying a contribution, and assets realising less than the trustee originally estimated.

So a house selling for less than the valuation is not, of itself, your failure. Tell the trustee early and get the position recorded.

Then the route is usually exclusion rather than agreement. AiB directs trustees to consider a section 166 exclusion where there is minimal, no or negative equity, and section 175 does not apply at all to a dwellinghouse already excluded.

How exclusion works on the equity question

Under section 166 the trustee provides you and the secured creditor with a valuation, you request that the creditor’s agreement be obtained, and the agreement goes in the prescribed form, which is Form 1A.

The lender then cannot claim under the deed for the secured debt and receives no dividend. Your repayment terms are unchanged and you remain liable for that debt, including after discharge.

Every limb of section 166(2) has to happen before you grant the deed, which whether you will lose your home in a trust deed sets out in full.

The trap in an excluded home

Exclusion protects the house, not the proceeds. mygov.scot states that if you sell a home excluded from the trust deed, any money you are left with after the costs of sale must be passed to your trustee.

That follows from section 167(1)(b), which binds you to convey estate acquired in the four years beginning with the date the deed is granted.

Only your share is in play. mygov.scot states that where you own your home jointly with someone else, the trustee can only take your share of the property equity.

What the co-owner keeps

The other owner’s share is not part of your estate, and their position on the equity is unchanged by your trust deed.

That does not make the practical conversation any easier. A share in a house is difficult to realise on its own, which is one reason a buy-out is so often the route taken.

Where the sources stop on a co-owner

How a trustee could deal with heritable estate over a co-owner’s objection is not something the published sources settle. Anyone who tells you otherwise is going further than the material allows.

Ask the trustee, in writing, what they propose where the property is jointly owned. Then take the answer to a free money adviser before you sign.

Joint debts are a separate question

A trust deed cannot be granted jointly, because section 164(1) requires a deed for a single estate. Where a debt is shared, the other person becomes solely responsible for the payments once you enter a trust deed.

The two numbers the whole thing rests on, the route the trustee proposes, and the dates. If a trustee cannot put those in a letter, that is your answer about the trustee.

The list

Use the time the Act gives you

Section 167(3) requires the trustee to give you a debt advice and information package and a trust deed information document, to advise you on the consequences, and to allow you adequate time to consider it.

Scottish Ministers’ guidance sets adequate time at a minimum of three clear days, not counting the day the materials arrive or the day you sign. Use it to get the property answer, and how trust deed monthly payments are calculated covers the other number you will be asked to accept.

And get an independent view

Only a licensed insolvency practitioner can act as trustee, but nobody has to pay for the advice that comes first. Which debt solution is best if you have a wage arrestment compares the routes for someone already losing part of their pay.