Charging Order? The myth

eggbox

Order For Sales are extremely rare and I would say inpossible on most family homes, However, the below explains the situation should that ever occur where the equity is lower than the debt owed..

4. Can the Court make an order for sale over a property owned by the debtor jointly with a third party?
Yes. The preceding charging order will be made only over the share of the property that belongs to the judgment debtor. The fact that the property is jointly owned will not prevent the court from making an order for sale of the property. Again, the court must exercise its discretion; it will no doubt balance the impact on the creditor of being prevented from enforcing the charging order and the impact on the joint owner of being forced to sell their interest in the property.
Please note that the debt charged will only be recoverable from the share of the proceeds following sale that belong to the judgment debtor. If, for example, a property that is owned by two people equally is sold to enforce a charge of £30,000, and where the proceeds of sale, following the discharge of any charges with priority (most commonly a mortgage) are only £40,000, the creditor will only be able to recover £20,000, the share owned by the judgment debtor.

rodes

eggbox - can you say where that quote is from? Different situation, as that refers to a forced sale and in that case there would be no breach, but interested to read the full source. Thanks.

eggbox

You'll find something similar on any Solicitors websites (I'll dig out where this was from later) dealing with charging orders and OFS, but you musn't just believe your Solicitor on this "breach" issue.

If your Solicitor is so sure on this you need him to explain how and why any "breach" happens? And by that he needs to show you where the Law states that there is a "breach" committed if the proceeds of the sale aren't paid to the restriction holder UPON SALE.

It has been proven by many posters on the site that an awful lot of solicitors do not understand the differences between charging orders made on solely owned property (where the charge attaches as an equitable charge similar to a mortgage) and jointly owned property where the charge only attaches to the debtors beneficial interest (equity). So need you to query your Solicitor on this issue as (in my opinion) it's duff.

rodes

Please note this, from the government's (Land Registry) Practice Guide 76: Charging Orders.

www(dot)gov.uk/government/publications/charging-orders/practice-guide-76-charging-orders

Section 2

"Where there are joint proprietors of land, they will always be holding the legal estate as trustees of a trust of land, of which they may, or may not, also be the beneficiaries. It is also possible, though less common, for a sole proprietor to be a trustee."

So this is where Trust Law comes into it. I am no legal expert, let alone on Trust Law, but I have read through the whole thread and can't find any references to this, and it seems a very important point. If you are a Trustee (which you will be as joint proprietor), my understanding is that you have a legal duty to act in the best interests of the Beneficiares. Someone holding a Charging Order on the beneficial interest of just one joint owner is a potential beneficiary of the trust. If there is a Restriction on the Title, you have a duty to check this, as Trustee. If you do not deal with them correctly, they could sue for breach of trust, and in that case all Trustees (usually the two joint owners) are potentially liable. At least, that's my current understanding.

Unless you're an expert on Trust Law, I suggest you check with your solicitor on this important point.

The main thrust of this thread, that a Restriction cannot stop a sale and you can inform the creditor even just after completion, is correct. What none of these 2,600 posts deals with is what happens to the money. Many have said you just take the money and there's nothing they can do about it. I would like to see the legal basis for that. Others have said they are only entitled to the debtor's half of the equity, and in general that's true... but if it's been sold under market value, not at arm's length (e.g. to a friend) or several other conditions, then there could be a case for breach of trust and they could sue both parties. Hardly seems fair at all, as D45 says above, but we need to be careful of dismissing 'yet another duff solicitor' when they may have a very valid point.

I don't know why this hasn't come up before? I am fully prepared to be set right and apologise for my ignorance, if someone knows Trust Law well enough.

eggbox

rodes wrote: »

If you are a Trustee (which you will be as joint proprietor), my understanding is that you have a legal duty to act in the best interests of the Beneficiares. Someone holding a Charging Order on the beneficial interest of just one joint owner is a potential beneficiary of the trust. If there is a Restriction on the Title, you have a duty to check this, as Trustee. If you do not deal with them correctly, they could sue for breach of trust, and in that case all Trustees (usually the two joint owners) are potentially liable. At least, that's my current understanding..

Also from Practice Guide 76:

"Entry of a restriction does not protect the priority of the interest to which it relates for the purpose of section 29 of the Land Registration Act 2002. A charging order affecting only the beneficial interests under a trust is liable to be overreached along with those interests by the operation of sections 2 and 27 of the Law of Property Act 1925. Accordingly, a Form K restriction will be usually be cancelled automatically, without application, when a transfer which appears to overreach the beneficial interests is registered."

Therefore, any "breach" issue becomes redundant. Also, as I previously explained; as long as the terms of the Restriction have been complied with then a sale can proceed.

A property holder can also sell his/her/their property for whatever price they like and to whoever he likes as there is no Law that says otherwise. A transfer of property won't remove a Restriction or Equitable charge but a sale for money can be at any value the owners see fit. (That is also why many creditors panic when they are informed the debtor will be handing the keys back to the mortgage company as any Charge held goes up in smoke due to the power of Sale of the First Charge holder. There is no "breach of trust" when this happens)

With regard to what happens to "the money"; whilst a Court can provide a Judgement against a debt it does not do anything else to collect the debt. That has to be done by the creditor through enforcement and which is costly.

Debt collection is a business like all others and if having gone to the trouble (and cost) of obtaining a CO and then received nothing in return; a creditor is highly unlikely to then pursue further legal action in light of this. This is the reason only a small proportion of debtors are pursued through the Courts and not every debtor.

Its simply because there are no guarantees of a return from obtaining a CCJ. Owing money (if not fraudulent or to Government) is not a criminal offence in the UK so the burden falls all on the creditor for the recovery costs.

Therefore, any creditor daft enough to consider suing for "Breach of Trust" would first make an assessment if it would be worth it? Hence, I would wager if you try a search of Google for instances of creditors suing for "breach of trust" you won't find any (in regard to a Charging Order Restriction)?

DAKOTA45

Lengthy, but interesting…

https://www.5sblaw.com/seminar-delegate-notes/property-law-issues-delegate-pack-11-june-2013.pdf

D45

rodes

eggbox - thanks for your thoughts

With all due respect, saying "...any creditor daft enough to consider suing for "Breach of Trust" would first make an assessment if it would be worth it?" is not the same as saying they cannot do it.

There may be many people reading this thread that think they do not have to pay the creditors anything, as has been said many times here, Whilst it is true that the solicitor does not have to send them the money, I do not agree that doing so is not a potential breach of trust, for which BOTH joint owners can then be pursued for the full amount of the debt - unless, as I said before, someone with specific knowledge of Trust Law says otherwise.

Let's say a property is sold with a Form K Restriction registered from a Final Charging Order (on a debt of just one of the joint-owners) for a debt of £20k. Say there is £50k equity in the property, so £25k each. Would it not be worth them going after their £20k, from either party, knowing there is £50k to chase after? If not, what about a debt of £50k on £100k equity?

Regarding price, I also do not agree that you can sell to who you want at any price you want. It has to be at market value, or the beneficial interest of the creditor is not being taken care of by the Trustees (sellers) and they could apply to the court to have the sale set aside. For example, someone might sell a property cheap to their mate, leaving little or no equity for the creditor, with a private agreement with their mate to share the subsequent profits. This action would be against the interests of a beneficiary of the Trust (i.e. the creditor) and therefore the Trustees (vendors) would be in breach of trust.

However, neither of us are solicitors so little point in debating further, and, as always, anyone should take proper legal advice before taking any action.

I was just concerned that some readers might not understand the full implications and subsequently get into difficulties, so should check this out.

Opinion is not the same as the law, even though interpretation of the law by experts is often down to their opinion!

I won't be commenting any more, else we will go round in circles. Many thanks.

DAKOTA45

Rodes… before you go… have a look at the link I just posted… it may be of some help.

Good luck!

D45.

rodes

Many thanks D45 - yes, very interesting! (although my head is spinning now!)

Thanks again

DAKOTA45

rodes wrote: »

Many thanks D45 - yes, very interesting! (although my head is spinning now!)

Thanks again

Mine started spinning about 5 years ago and hasn't stopped since… legal jargon does that to you… I should be well versed in it by now, but of course, they move the goalposts every few years so to catch us out and make us pay for lawyers… Pffft!!!

All the best...

D45