Charging Order? The myth

Routerman

eggbox said:

Router's
I think you owe Wookie a thank you for saving your time as I'd assumed you didn't  have a mortgage. 

But can you not re mortgage with your existing lender as there is no need to remove the restriction then as they're already the 1st charge holder?

Yes definitely, done, unfortunately our existing lender has an age limit of 75 and I'm 72 so not possible, also it's an interest only mortgage due to expire in a couple of years hence the remortgage.

I have suggested the charge holder only needs to be notified, as it's a Restriction, to the Nationwide rep for the remortgage but I very much doubt that will be viewed favourably.

Thanks again.

eggbox

No it won't as they will be required to be first charge on the register and, without the restriction being removed, they won't be .

blockhead22

Ok this is a very long but extremely useful post/thread, thank you to all who have contributed positively in order to help.
I have been working through the thread for the past two days now. I'll continue to read the thread but wanted to hear from

• people who had gone through the process of selling their house with restrictions  and practical guidance they could offer. It seems the choice of conveyancer is a key issue, but you have no control over the purchasers choice of conveyancer or the advice they receive from them.
• any legal advice and/or conveyancers/solicitors who could advise me on this issue. It seems straight forward enough, but also misunderstood and therefore a considerable and costly risk .

Our situation is we have a joint owned property with a mortgage and 5 restrictions in sole names. The restrictions are standard Form K wording. We have accepted an offer on our house and are now proceeding with the conveyancing process. I have already assigned a conveyancer, but I did that before I found this thread. I will speak to my conveyancer next week and I may consider changing if that's required. It seems some conveyancers don't understand this and don't like being corrected.

These are the notes I have made from the thread so far to discuss with the conveyancer next week. Any amendments, suggestions, and/ or additions would be gratefully received.

1. There are five Form K restrictions on the property title registered with HM Land Registry, and I note these are Form K restrictions not final charging orders or equitable charges.
2. I do not want there to be any contact with the beneficiaries of the restrictions until the notice required under the terms of the restrictions is issued. This notice can be issued the day before completion and no notice period is required or timeframe stipulated or specified in relation to the notice and its issuance to comply with the restriction.
3. A Form K restriction is not listed in the charges register and is not a charge on the property.
4. As the property is jointly owned and the Form K restrictions are in a sole name, the restrictions are not final charging orders.
5. The restrictions are standard Form K restrictions and are not against the property title but against the sole interest in the proceeds of sale. The restrictions do not prevent the sale or transfer of the property.
6. A Form K restriction is only a means of notification of the property being sold, not an automatic right to payment or an obligation to pay from the sale proceeds. No date or timeframe is specified on the issuance of the notice to comply with the restriction.
7. The restrictions do not carry an obligation to pay any of the proceeds of sale. This is for me to negotiate settlement of.
8. The purchaser’s solicitor will require an undertaking from you as my conveyancer that the beneficiary of the restriction will be notified. The restrictions will be removed on completion of the purchase. It is important to note again that these are restrictions on the individuals proceeds of sale and not final charging orders against the property.
9. Under the terms of the restrictions on the title, HM Land Registry require a letter from you as our conveyancer confirming that the beneficiary of the restriction has been informed of the date of completion. This notice can be sent the evening before or on the day we complete the sale as the restrictions do not make any stipulation on dates and time frames with regards the notice informing them. There is no 14-day notice stipulation, which is a common misunderstanding with regards title restrictions.
10. HM Land Registry will not ask to see the consent of the beneficiary of the restriction as they will receive a transfer notice from the purchasers once the sale is complete. The restrictions will no longer apply at that stage and will be removed by HM Land Registry as the property has transferred.
11. The purchaser’s conveyancer only needs to write (give notice) of transfer to the beneficiary of the restriction once their client has completed. At this point the restriction will be cancelled as the transfer is registered to the purchasers.
12. HM Land Registry has the notice of transfer and the notice that the beneficiary of the restrictions has been notified in accordance with the requirements of the restriction.
13. HM Land Registry will remove the restriction once the terms of the restriction, (written notice to the beneficiary as detailed in the restriction) have been met and the transfer is notified.

In short form:

A.      A Form K restriction cannot prevent a sale as it cannot prevent a change in the registration if you have complied by giving notice to the Restriction Holder.

B.      Form K restrictions do not carry an obligation to pay any of the proceeds of sale. This is for me to negotiate settlement of.

C.      HMLR’s position is when a transfer of property is registered (following receipt of the required certificate) the restriction may or may not be automatically cancelled, depending on the circumstances of the transfer. If the application is to register a transfer by two or more proprietors to a third party for value, the trust interests will be overreached, and the form K restriction will be cancelled.

For further understanding and clarification on the matter of restrictions please note on the .gov.uk website updated on the 23/04/2021 it is stated as follows:

Jointly owned property

It is not possible to register a charging order as an ‘equitable charge’ on a jointly owned property unless all the owners / registered proprietors are judgment debtors. Where only one of the owners / registered proprietors is the judgment debtor, the order will be registered as a ‘restriction’.

A notice or restriction does not impose an obligation to make payment when the property is sold. 

In addition, in respect of the removal of restrictions the gov.uk website states:

3.7.1 Removal of restrictions

Restrictions may be removed from the register by:

 - being cancelled by ourselves if it is clear that it is superfluous (paragraph 5 of Schedule 4 to the Land Registration Act 2002)

We will cancel the restriction if we are satisfied that the restriction is no longer required. The application must be accompanied by evidence to show that this is the case.

Practice guide 76 charging orders shows that where joint proprietors are registered, and the charging order is not made against all the joint proprietors it is only possible to enter a Form K restriction and not a notice (charging order) on the legal estate.

In addition, practice guide 76 states: We will automatically cancel the Form K restriction once it has been complied with on registering a transfer of the registered estate for valuable consideration. We will assume that if the debt secured by the charging order has not been paid, your client’s interest will have come to an end with the postponement of the charged beneficial interest under section 29 of the Land Registration Act 2002.

Apologies for the long post and thanks in advance for any assistance.

blockhead22

I had an online chat with a debt charity and stated to them as follows:
The restrictions are standard wording K restrictions with no date or timing stipulations. The restrictions are against my interest in the property (proceeds of sale) not the property itself. This absolves the buyer from any liability. Once I have the proceeds of the sale I can negotiate with the creditors. The buyer has no restrictions once they write their letter.
The debt charity reply was as follows:
You're likely to find in practice that the creditors will refuse to release the restriction unless they are satisfied that their debts will be settled to their satisfaction. Likewise buyers and their representatives tend to be reluctant to proceed until these restrictions are lifted. Otherwise the restrictions serve no benefit for the creditors. The Land Registry won't allow the restrictions to be withdrawn unilaterally without good reason
The debt charity were basically contradicting everything I had read and understood on this thread and elsewhere in the past two days including on the .gov.uk website. However they were saying it's what actually happens in practice, which is probably the case. How do I ensure I don't become another victim of the misery vultures? 

Wookiee501

blockhead22 said:

I had an online chat with a debt charity and stated to them as follows:
The restrictions are standard wording K restrictions with no date or timing stipulations. The restrictions are against my interest in the property (proceeds of sale) not the property itself. This absolves the buyer from any liability. Once I have the proceeds of the sale I can negotiate with the creditors. The buyer has no restrictions once they write their letter.
The debt charity reply was as follows:
You're likely to find in practice that the creditors will refuse to release the restriction unless they are satisfied that their debts will be settled to their satisfaction. Likewise buyers and their representatives tend to be reluctant to proceed until these restrictions are lifted. Otherwise the restrictions serve no benefit for the creditors. The Land Registry won't allow the restrictions to be withdrawn unilaterally without good reason
The debt charity were basically contradicting everything I had read and understood on this thread and elsewhere in the past two days including on the .gov.uk website. However they were saying it's what actually happens in practice, which is probably the case. How do I ensure I don't become another victim of the misery vultures? 

They are wrong.  Land Registry has no power to prevent the restriction from being removed, provided its terms have been complied with and the restriction itself has been overreached (which will happen after a Transfer on sale).  The creditors are not at liberty to refuse to release the restriction - they get no choice in the matter.

eggbox

blockhead22
You're on the right track but you just need correcting on a few issues (which I'll do a bit later when I get home.) But for now let me say that the debt charity wasn't wrong in the advice they gave you as a creditor will refuse to release the restriction unless the debts are satisfied; the point this thread explains is that if the sale is allowed to proceed, then the Restriction is automatically cancelled which is different to the creditor releasing the restriction. The decision at that stage has been taken out of their hands but for a different set of circumstances being allowed to proceed. 

Likewise, they are correct in explaining that buyers solicitors are reluctant to proceed with a sale if the Restriction hasn't been removed prior to the sale proceeding; which is the main obstacle to achieving a Restriction being cancelled through being overreached. Which is the only way you will avoid repaying the creditor upon sale.

They are also correct regarding the Land Registry not allowing the Restriction to be withdrawn without good reason. Being withdrawn is not the same as being cancelled which is crucial to understand. Being withdrawn refers to the Land Registry removing the Restriction, either, by the creditor no longer requiring the Restriction to be in place or the debtor seeking to remove the Restriction for a particular reason (the latter being what the debt charity was referring to.) The Land Registry will, however, automatically cancel the Restriction if the conditions for cancellation have been met. So. you just need to understand the process a little clearer to, hopefully, get you over the line.

eggbox

Blochead22 
I've added some notes to help below. I will defer to Land Registry Rep on anything he may wish to add?

1. There are five Form K restrictions on the property title registered with HM Land Registry, and I note these are Form K restrictions not final charging orders or equitable charges. A Restriction is a notification of a Charging Order which can be interim or final. What they are not is an equitable charge
2. A Form K restriction is not listed in the charges register and is not a charge on the property. It is listed in the charges register
3. As the property is jointly owned and the Form K restrictions are in a sole name, the restrictions are not final charging orders. As explained in point 1; they are a notification of a Charging order which can be interim or final
4. A Form K restriction is only a means of notification of the property being sold, not an automatic right to payment or an obligation to pay from the sale proceeds. No date or timeframe is specified on the issuance of the notice to comply with the restriction. The creditor has had a legal right conferred to recover their debt owed and would, rightly, expect the proceeds to be forthcoming upon sale. But as a (complied with) Restriction will automatically be removed upon sale, if the money isn't forthcoming then the Law takes no action and the burden is put back on the creditor to make further effort to recover the funds owed. 
5. The restrictions do not carry an obligation to pay any of the proceeds of sale. This is for me to negotiate settlement of. As explained above, the creditor has a legal right to ALL the money owed. But the Law doesn't stipulate an obligation that the money has to be paid upon sale. But you have no right to negotiate anything regarding the money owed to the creditor - you're just not going to give it them. (See my advice on this below)
6. The purchaser’s solicitor will require an undertaking from you as my conveyancer that the beneficiary of the restriction will be notified. The restrictions will be removed on completion of the purchase. It is important to note again that these are restrictions on the individuals proceeds of sale and not final charging orders against the property. The restrictions are  removed when the Land Registry makes the transfer of ownership as that is when overreaching occurs. This can be several weeks after you complete the sale. 
7. Under the terms of the restrictions on the title, HM Land Registry require a letter from you as our conveyancer confirming that the beneficiary of the restriction has been informed of the date of completion. This notice can be sent the evening before or on the day we complete the sale as the restrictions do not make any stipulation on dates and time frames with regards the notice informing them. There is no 14-day notice stipulation, which is a common misunderstanding with regards title restrictions.The creditor isn't informed of the date of completion only that the sale is happening. However, its the buyers side that has to confirm to the Land Registry that notification has been given to the creditor so they will usually provide the notification to ensure its been carried out.
8. HM Land Registry will not ask to see the consent of the beneficiary of the restriction as they will receive a transfer notice from the purchasers once the sale is complete. The restrictions will no longer apply at that stage and will be removed by HM Land Registry as the property has transferred. There is no consent required from the creditor in a standard Form K restriction. The transfer notice is required as part of the sale process but the Restrictions will only be cancelled at the point the Land Registry update the register
9. The purchaser’s conveyancer only needs to write (give notice) of transfer to the beneficiary of the restriction once their client has completed. At this point the restriction will be cancelled as the transfer is registered to the purchasers. No, the Restrictions are only removed AFTER conpletion when the register is updated. This is why many solicitors won't agree as they require want the restriction removed prior to completion.
10. HM Land Registry will remove the restriction once the terms of the restriction, (written notice to the beneficiary as detailed in the restriction) have been met and the transfer is notified. No see above.

Its important the above is undertand if you are going to try and persuade conveyancers to get on board. The method works because of the weakness of the security the creditor has in obtaining his money. It must, also, be restated that this thread is only aimed at lenders who charged high interest rates on "unsecured" loans but, through the Law, were able to turn that unsecured debt into a "secured" debt after default. Which, in my book, is morally wrong as the risk factor that allowed them high interest returns has been eliminated. So good luck but my advice, should you succeed, is NOT to contact the creditor to try and negotiate any repayment. If you do you may well be opening a door for them to try and persue you for the full amount. Debt collectors chase the weakest people first as they are proven to be the easiest to extract money from. Contacting a debt collector will be see, by them, as a sign of weakness so don't make that mistake.

Wookiee501

eggbox said:

Blochead22 
I've added some notes to help below. I will defer to Land Registry Rep on anything he may wish to add?

1. A Form K restriction is not listed in the charges register and is not a charge on the property. It is listed in the charges register

Minor point but restrictions don't appear in the Charges Register, they appear in the Proprietorship Register.  The Charges Register shows rights and interests that burden the title, the Proprietorship Register shows ownership and any restrictions that inhibit the ability of the proprietor(s) to deal with the title.

eggbox

Correction noted!

nuk

Hi everyone, I hope some one can advise me.  I've read through the forum and I'm a bit confused.  And I've spoken to a number of solicitors and get a different story from all of them!  My situation:

Currently have an interest only mortgage which I want to change to a interest and capital.  However, my wife is older than me and as a result it's proving to be difficult to get a joint mortgage that is affordable due to the length of term allowed because of her age.  I therfore want to take out a mortgage in my name only which will make the length of term much longer and therefore more affordable.  I'll need to take her name of the title deeds to do this. 

There is an interim charge on the property though for a debt in my wife's maiden name from 12 years ago.  The wording on the restriction is "No disposition of the registered estate is to be registered without a certificate signed by the applicant for registration or his conveyancer that written notice of the disposition was given to [name of person with the benefit of the charging order] at [address for service], being the person with the benefit of  charging order on the beneficial interest of (name of judgment debtor) made by the (name of court) on (date) (Court reference.…)." 

But the latest Solicitor is saying they'll need a certificate of consent from the creditor that confirms notice has been served, and this could delay things quite a bit dependent on whether the creditor wants to play ball.  Is this right? from what I read on this forum its just a certificate from the solicitor to say Yeah we've informed them?  I'm really confused and stressed with the situation so any advice would be much appreciated.  Thanks