Registered Charge/Debt on Property - Should Solicitor spotted this earlier?

traceye

Hoping someone can help.
Friends have been buying a repossessed property. Their solicitor got the HIP report straight away. In this there is details about a registered charge(debt) owed by the previous sellers. This is seperate to the repossession order, and still remains on the title deeds, despite the bank now owning the property.

It has come to exchange and the solicitors are now saying they cannot exchange as the seller (now the bank) will not remove this registered charge.

My question is, surely my solicitor should have noticed this as soon as they got the HIP ? Since then they have paid for other searches, mortgage fees, mortgage advice etc. At what point should the solicitor have brought this up as an issue to prevent all this money being wasted, and what can they do about it now ?

Hope someone can help, they are really stressed about it all.

Thanks!

pawpurrs

It is a standard question on the sellers forms, that all charges will be paid by the sale of the property. On a repo it should be of most importance that this question is sorted early on. I would allways ask this to be checked before I started spending money out on a house. The charge shouldnt be transferable to the new owners, but it may prevent the sale going through if theres not enough cash to pay off all the debtors. Hope it gets sorted.

traceye

Should this be a question the solicitor should have sorted out initially ? (the person dealing with it is calling themselves a Conveyancing Executive - is this a solicitor ?). If it was up to the solicitor, are they entitled to raise a concern with them that they should have done this sooner? Thanks

silvercar

Whoever has repossessed needs to sort this. Without removing this charge the property is unsellable.

The charges have an order of priority, so the mortgage is cleared first then the next charge. This is sometimes why second charge holders have little weight. If the money from a sale won't clear the main mortgage, there is little point in repossessing as a second charge holder as they will get no money.

The charge will still be on the deeds until a sale as the charge holder is still exactly that. The property is in the hands of the main charge holder now ie the mortgage lender but the charge remains. I would have thought that on sale the second charge holder has no option but release the charge and would then expect them to chase the repossessed for the money which effectively becomes an unsecured loan. The second charge holder shouldn't be able to stop the sale as that would mean they carry more power than the mortgage lender. By not removing the charge they effectively prevent a sale, so I doubt that the mechanics allow for this. I thought that when a second charge is placed on a property, the second charge holder acknowledges that there is a mortgage and that they undertake not to stand in the way of a repossession.

pawpurrs

Thats as I understand it silvercar, I would let the soliceter try and sort this out with the vendor (ie the bank) they will want their money so they need to get it sorted, it just may take a little while.

traceye

There are two banks that have put a charge on the property. Apparantly the 2nd bank should have wiped the charge for the 1st one but this didnt happen. they are saying "the prior charge cannot automatically be wiped as the previous solicitors made a huge error in the registration process"

The seller want the sale to go ahead prior to this charge being removed, and then leave it up to my friends solicitor to try and remove the charge, and then register them as the legal owners - but there is no gaurantee that this will happen.

Would people advise to back out unless the seller removes the charge ?

Also, what role has the solicitor to play in this, in identfying this early on in the sale, without paying out nearly £1200 in fees ? (they even have the deposit!).

Thanks for all your help

silvercar

Who has repossessed? The second charge holder or the first?

If it is the second charge holders then it sounds like it was their solicitors who messed up in not ensuring the first charge was removed. They should put it right as it was their mistake and they are now losing out by it.

If it is the first charge holders then it sounds like they shouldn't even have a charge on the property!

This problem will occur whoever buys the property, so the legal team of the sellers need to sort it out. Backing out is an option, but the legal time are going to have to sort it out so really you want them to realise this and get on with it.

Your solicitor can hardly be expected to know that a charge holder's charge should have been removed previously. It is often the case, with repossessions, that the repossessed took out secured loans (2nd charges) prior to repossession. Either as a last ditch attempt to sort their finances or for some other reason that lead to their downfall (having over extended themselves). Your solicitor can't be expected to know that the first charge holder won't remove their charge.

Richard_Webster

If the second charge owners are selling then their sale "overreaches" and clears off any subsequent charges to theirs and if there are any they can be ignored.

A second charge owner will have to make sure that it can pay off the first charge out of its sale proceeds in the same away as any ordinary seller has to got be able to pay off his mortgage from the sale proceeds in order to complete.

If the second charge owner is not prepared to do this then you cannot proceed and neither can anyone else. You would expect a second charge owner not to embark on the process of selling if they couldn't pay off the mortgage - and you are in the same poistion as a buyer from a person in negatiove equity who cannot persuade his lender to release the mortgage from the property. In neither case would it be something that your solicitor could reasonably expected at the outset.

It is quite rare for second charge owners to repossess because they have all the hassle of doing so and may not get their money back because it may all have to go to the first charge owner.

silvercar

From RW's comments it appears that the second charge owner needs to either sort out the problem with the first charge holder or to pay off the first charge holder. Both eventualities that the second charge holder should have seen when repossessing. Something that their own legal department should have spotted soon after their charge was registered.

I wonder if the second charge holder is a high street lender that wouldn't normally offer second charge loans and therefore isn't used to this setup.

The only way out of it should the second charge holder refuse to clear the charge is to reduce the offer price by the amount needed to clear the first charge and then clear it yourself.

RabbitMad

sounds to me like the owner remortgaged and the new mortgage company forgot to remove the orginal mortgaeg charge. They've now had to reposses and have realised they forgot to remove this charge before and want the OP to complete and deal with this hassle.

Richard_Webster

sounds to me like the owner remortgaged and the new mortgage company forgot to remove the orginal mortgaeg charge. They've now had to reposses and have realised they forgot to remove this charge before and want the OP to complete and deal with this hassle.

Well then they sue their solicitors for not making sure the prior charge was removed!