Charging Order? The myth

eggbox

And another quickie that has just popped into my head!


What occurs regarding priority and payment of charges when an Order for Sale is granted to a creditor with a lower priority charge than the first priority charge holder?

JasmineStocks

I would be interested too in Eggbox's question. Because of the delay by our conveyancers insisting the shortfall of my mum's restrictions are paid before completion, the second charge holder is getting impatient and has told us that we have 3 weeks to complete otherwise they will be taking my mum to court. Does the first charge holder (the mortgage company) have any say in the matter? Thanks.

eggbox

Looks like this questions having to be researched! :think:

Land_Registry

From a Land Registry perspective only every registered charge gives the lender (unless there is an entry in the register to the contrary) the power of sale.

Most transfers under power of sale are made by the first chargee. The lender must use the money raised by the transfer, first to offset its own expenses in connection with the sale, secondly, to discharge its own charge and thirdly to pay off any subsequent lenders.
After these payments are made, any surplus money must be paid to the borrower.

A Transfer under power of sale by a second (or later) registered chargee is very rare but the expectation from our perspective is that their application will also include a discharge of the first charge, namely it has been paid off using the proceeds of sale or the transfer is made subject to the first charge.

I would imagine therefore that part of the process of obtaining the Order for Sale includes satisfying the court as to what is to happen re the first charge. And that the first chargee would have some say in that process. However we are simply not involved in that part of the process or in the 'slicing of the security cake' so to speak so more research seems the right way to go here.

It is though important to note that part I have emboldened above eggbox as your question simply refers to lower priority charge a term which can be applied to other interests referred to on the register of course.

eggbox

Hi LRR

Thanks for the reply! Just to make sure we are talking about the same issue (as some of the terminology can be confusing to the layman) can I ask you to clarify what the LR definition of a "Registered Charge" is and also what the LR definition is of "Power of Sale"?

Also, from a LR perspective, is it possible for a Charge notified only by Notice or Restriction can have a Power of Sale?

Land_Registry

A registered charge is a way of securing the payment of money. The most common example is a charge by way of legal mortgage. A mortgage is given to the mortgage lender when a person borrows money and signs a mortgage deed. The mortgage is registered against the borrower's property until the loan is repaid. If the loan is not repaid, the lender has the right to sell the property

A power of sale is defined in the Law of Property Act 1925 as a power, when the mortgage money has become due, for a mortgagee to sell mortgaged property.

The legal bit, S.101(1)(i), LPA 1925 states:

“A power, when the mortgage money has become due, to sell, or to concur with any other person in selling, the mortgaged property, or any part thereof, either subject to prior charges or not, and either together or in lots, by public auction or by private contract, subject to such conditions respecting title, or evidence of title, or other matter, as the mortgagee thinks fit, with power to vary any contract for sale, and to buy in at an auction, or to rescind any contract for sale, and to re-sell, without being answerable for any loss occasioned thereby”

From a registration perspective the power of sale will only arise where a registered charge (mortgage) is concerned.

eggbox

Ok thanks. Correct me if I am wrong but that info suggests too me that a Charge on Beneficial Interest notified only by a Restriction wouldn't have a power of sale?

Land_Registry

eggbox - have a read of our online guidance re Transfers under power of sale. Section 5 is relevant to this thread.

In my experience though a Transfer under power of sale will generally only arise from a first registered legal charge, a mortgage to you and I. An order under s90 of the LPA 1925 is not the same, as far as I am aware, as where the court orders the property to be sold by the debtor which you have referred to in earlier posts to this thread.

There is not too much else I can add to this as the issues relevant to charging orders and how they arise or the powers they afford the beneficiary are not matters we are directly involved in. As you know we are very much at the end of the process.

However I appreciate that you are mainly trying to offer reassurance to people around what powers a charging order affords a creditor and as such I believe the above is useful although, as you already appreciate, reference to a legal adviser should always be sought for a proper understanding of the law. I am not a lawyer.

eggbox

Land_Registry_representative wrote: »

However I appreciate that you are mainly trying to offer reassurance to people around what powers a charging order affords a creditor and as such I believe the above is useful although, as you already appreciate, reference to a legal adviser should always be sought for a proper understanding of the law. I am not a lawyer.

Hi LRR, thank you and I will have a read up later today!


I think I speak for everyone on this thread when I say your input has (and continues to be) invaluable and we thank you for taking the time and trouble to clarify certain rules and regulations that (it would appear) are as confusing to the "legal" advisers as they are to the person in the street.


Sadly, many legal advisers do seem to have an, unshakeable, interpretation of what a CO is and do not seem to care for the actual rules governing them even if they are in the interests of their own, paying clients. That is why your help on these matters is so useful.


As a creditor, under the law, is able to "secure" an "unsecured" loan then I think it is only correct to redress the balance by making sure that debtors are made fully aware of the actual powers, under the same law, that Charging Orders hold.

eggbox

Hi LRR I've had a read of the sections you have recommended but I'm still struggling with some of the terminology?


I'll give it another go tonight when I have a bit more time, but to help on that; when I asked yesterday what a "registered" charge was you said it was "a way of securing the payment of money". But it's the "registered" part I needed clarifying. Are there, for example, charges that are not registered or can't be registered? And if so how do they differ from the registered charges.


And would a charge on BI, that can only be noted by Restriction, be classed as a registered charge? Sorry if this sounds a bit dumb but unless you are used to what the terms actually mean it's hard to get your head around a lot of the reading.