Securing a second charge on a property - can the first charge prevent this?

mckmeister

I am owed money for business services in excess of £10,000 which added value to someones home. The original agreement was that I can put a second charge on their property so that I will receive my money on sale (they're trying to sell their house as we speak).

But can a mortgage company (first charge on register) actually prevent me from making a second charge? There appears to be a lot of discrepancy about this and I need the issue clarified.

If the mortgage company want to prevent me from making a second charge couldn't I just say "okay then my client would like to remortgage with a different lender (providing that my client is willing to do this)" after all a lot of value (£30,000 has been added to the house) so remortgaging would surely benefit my client anyway ...?

Please advise, thanks in advance

steve1980

So you're a builder and estate agent?

In answer to your question, yes, the first charge can stop anyone else placing a second, third, fourth charge on a property.

You should have got agreement from the mortgage company first before work was carried out.

david29dpo

Wrong. The first charge cannot stop any other charges. Indeed, why would there care? The first charge gets there money back first anyway, any left over from that goes to the second and so on.

paddedjohn

david29dpo wrote: »

Wrong. The first charge cannot stop any other charges. Indeed, why would there care? The first charge gets there money back first anyway, any left over from that goes to the second and so on.

agree with this

Emmzi

However the second charge holder cannot do anything with their charge without the permission of the first charge holder. That's the bit that confuses people :-)

Richard_Webster

A lot of confusion here. Under the general law the mere fact that a first mortgagee has a charge registered against a property does not mean that it can stop the regsitration of a second charge.

Having said that, most major lenders now have wording in their mortgage deeds that contains an application for a restriction preventing any dispositions (inlcuding second charges) without their consent.

roger196

The Unfair Terms in Consumer Contracts Regulations 1999

1999 No. 2083 Regulation 5
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Unfair Terms

5.—(1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer

Why do you think that the requirement to obtain the permission of the first charge holder is not an unfair term in the light of regulation 5 quoted above?
The first charge holder is not affected by a second charge as the former has to be paid in full before the second charge holder gets anything.

Richard_Webster

I think the reality is that institutional mortgagees are concerned that a dodgy second mortgagee could lean very heavily on the borrower to pay them, and the borrower might then not keep up the payments to the first mortgagee.

holly_hobby

All mortgage lenders require first charge, they will generally place a restriction on title, which means that LR is prevented from the registration of any further title without the restricted title owners permission.

Mge lenders can and do, refuse any subsequent registration - one reason being that should the individual default on the arrangement under which any further 2nd, 3rd or whatever charge is made, the party in question may pursue a possession order through the courts independent of the mge lenders co-operation.

The only instance where the permission of 1st (or other) chargee is not reqd by LR, is if there is no restriction on title, or in the event of a charging order being appointed through the courts (which may be enforced without any chargee's permission, regardless if they have restricted title already in place).

Hope this helps

Holly

mckmeister

Thanks for everyones help and advice so far - this is a really interesting one.

If the first charge lender (mortgage company) refuses a subsequent registration - does anyone think a Deed of Priority or similiar would change things (just a reference i've read elsewhere)?

If my second charge was still refused - could I enter a 'Restriction' on the deeds (Land Reg form RX1) and try and put claim to my money this way? Would this be a feasible and effective way to get access to my money on sale?

I have seen the above murmurings from various sources and would like some advice on the best approach.

Thanks in advance

Richard_Webster

Deed of priority no help - this is used where there is an existing second mortgage registered and borrower wants to change his first mortgage. When Existing first mortgage removed second mortgage moves up unless it agrees to give priority to new institutional mortgage - most mortgage lenders would make it a condition of lending that they had priority in this way.

You could certainly try registering a restriction but this would only help if the borrowers sought to sell - he would have to approach you to remove the restriction - but if he defaulted on this first mortgage and it took possession and sold it would overreach subsequent entries on the register and therefore could effectively ignore your restriction.