Legal aid charge on property - can it be transferred?

audigex

So a nasty surprise today - we discovered/remembered that the house I'm buying (my mother's) has a legal aid charge against it from 1999

We're not sure what the initial amount was, but suspect somewhere between £5,000-10,000

The worst part: we've just discovered that it has an ASTONISHING 8% interest rate! Meaning the debt could be £12-23,000 or more! And that's not even including the fact that the interest is only applied on the initial amount.

How the hell the government justifies 8% on such a debt is absolutely beyond me, especially considering the nature of legal aid

Does anyone know if this charge can be transferred to another property, or whether it has to be paid on the sale of this one?

Also I saw mention that the interest only began more recently: is it possible that my mother's loan was interest free, and is there a way to check this?

I'd appreciate as much information as anyone has, please, even if it doesn't tell the full story!

Annisele

8% isn't actually that high - historically, rates have been *much* higher than that. Plus, the fact it's simple interest (applied on on the initial amount) rather than compound makes a huge difference over 16 years. A £5,000 debt with interest at 8% per year simple over 16 years works out at £11,400. With compound interest at 8%, you'd have a debt of £17,129.

The CAB has some basic information about charging orders, as does StepChange.

I think it's very unlikely the loan was interest free. Final charging orders come with interest. So, unless there was a special term in the relevant order (which I think is very unlikely) the interest is going to have to be paid.

Ultimately, if you want to the house to be registered in your name you're either going to have to pay off the debt, or negotiate with the creditor. I'd be surprised if the creditor will agree to transfer the charge to another property, but you won't know unless you ask. (You might want to take proper advice before you ask the creditor anything).

G_M

The ideal solution of course would have been to avoid the debt in the first place.

The next best solution is to pay it off asap.

Transferring it, even if possible, just makes things worse in the long run.

Since you are paying mum for the property she should use the sale money to pay off the debt.

audigex

I'd say it's pretty insanely high considering the nature of legal aid (helping those who can't afford legal help) and the level of inflation and house price rises since then.... the fact is that the charge could potentially now be 25% of the value of the house.

A little further digging, though, because my mum can't actually remember hearing anything at all about it in the last 16 years and doesn't remember being told about interest at all: this suggested perhaps our fear was perhaps unfounded

I've just pulled the Title Register from Land Registry, and it doesn't seem to show anything relevant (see attached, minus identifiable information): This is obviously not the full legal document, but considering a search for my sister's property shows entries in both of these sections relating to her mortgage, does this mean that there is no charge against the property?

If there is not charge against the property, is there anything else which could prevent the property being sold?

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Below is a response to G_M, not directly related to the above query

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G_M, although I appreciate what you're saying, those are not necessarily options right now (assuming there is a debt, which we're not sure of, see above).

1) The debt was unavoidable, relating to necessary legal proceedings.

2) Obviously paying it off ASAP is ideal, but a potential £25k debt isn't easily disposed of when it's over 100% of her gross income and upwards of 30% of the value of the house. £5-10k may have been possible, but as mentioned my mother wasn't aware of the interest.

She knew there was a potential £5-7k which would require paying off with the sale of the house, and had allowed for that with savings (or up to £10k at a stretch), but hadn't accounted for £11-25k+ (minimum-potential worst case). Now we're aware of it, it will be dealt with ASAP, but although we can sort it over the next 2-3 years, it won't be possible before the sale of the current house would have to occur. While that's not the end of the world, we'd very much like to avoid it.

3) Transferring it may make things worse in the long run, but it would solve the immediate problem (mum needing to downsize) and would free up some of her funds to pay the debt off. Note this is a lady who hasn't been in any form of debt for 15 years, she's not the type to ignore a debt once she realises it was there: the only reason this hasn't been looked at before was that as far as she was aware it was £5k (at most 7-10k), deferred interest free until the house was sold. She had no idea it could potentially be as high as this. Transferring the debt would allow us to pay it off fairly rapidly while still completing our moves.

I'm paying mum for the property, but she has to have somewhere to live: the amount I'm paying will just about cover a 2 bed terrace in this area, as the current property is fairly run down. If this charge exists and is as high as we fear, it will scupper both moves. If that's how it has to happen then she'll pay off £10k immediately and can pay the remainder in 2 years, so this isn't going to be life-ruining, but I'd like to buy her house and she has one she'd like, so it would be very inconvenient and I'm just trying to get as much information as possible.

I'm not really looking for debt management advice here (the debt can be dealt with with known sources of income in the next 3 years) - I'm looking for ways to allow the current sale to go ahead without having to potentially find £25k right now when it can be so easily dealt with. The only other option we're considering is for me to buy the house she's moving to (smaller, similar value but not run down) and then we can swap later when the debt is paid.

G_M

audigex wrote: »

So a nasty surprise today - we discovered/remembered that the house I'm buying (my mother's) has a legal aid charge against it from 1999

I don't understand.

What is this based on? A 'discovery'? In which case how? Or a memory?

audigex

The charge was known about as it was mentioned at the time, but being (as far as she was aware) interest free and deferred, she didn't think much of it. Basically she's always just mentally taken 5k off the value of the house and based decisions around that. The 5k was accounted for, essentially, in the house price differential. She's selling one house for £95k, buying another for £88k. At worst the debt was expected to be £10k, which would be accounted for with savings in addition to the above difference.

When discussing this in casual conversation with a conveyancer we know, she (conveyancer) mentioned "so what's that worth with interest?". The discovery was the potential interest and the rate thereof, which would push the debt from the known about £5-7k (£10k max) to £11-16k (max 23k). This is obviously a lot higher than the £5-10k which had been planned for.

Essentially we were aware of the charge and had planned for it under the terms she originally understood, but we then found out that it could potentially be anywhere between 2 and 5 times more than planned for. This leaves up to £15k which we simply don't have available right now. At a stretch, we could possibly cover £15k with other savings, leaving up to £10k which we simply don't have right now.

Thrugelmir

audigex wrote: »

The charge was known about as it was mentioned at the time, but being (as far as she was aware) interest free and deferred, she didn't think much of it.

How much has your mother benefited from the rise in house prices in the same period?

Statutory interest of 8% on unpaid debts has been in existance for many many years.

macman

Bank rate in 1999 was around 6%, so 8% interest is not high for that era-perhaps you're too young to remember mortgage rates at c. 17%?
The increase in the house value has probably far outweighed the increase in the debt at 8%. And she has had 16 years to clear it or save for it.

Bossypants

macman wrote: »

The increase in the house value has probably far outweighed the increase in the debt at 8%. And she has had 16 years to clear it or save for it.

This. Even if it had been interest-free, a debt is a debt and should be paid, not forgotten about just because it wouldn't cause you greater grief down the line.

audigex

The house price has certainly not increased by 128% in the last 16 years. And of course she's had the last 16 years, but as far as she was aware (incorrectly, obviously) it was interest free and simply deferred. She should perhaps have understood and researched it better at the time, but without going into personal details she had much more important things to consider at the time and either was misled or misunderstood. If she was aware of the debt/interest it would have been paid off several years ago: she wasn't aware so it wasn't paid. That's just the situation, "should've/would've/could've" discussion is academic: the fact is that there's (possibly) a charge on the house.

I think we're perhaps getting bogged down in the "You should have paid it off", "You should have realised it was a debt", "You should have understood the interest" - this is irrelevant: there was a misunderstanding for whatever reason and she never had reason to question it so didn't. It wasn't ignored, it simply wasn't relevant: it would be paid off with £5k of equity in the house at the appropriate time, planned for in her downsizing move before retirement.

Let's forget the discussion of whether the debt is fair, whether it should have been paid off etc.... perhaps I shouldn't have mentioned those details as it's distracting from the point in hand. The debt exists (or we're assuming it does until proven otherwise), and if it does will be paid off in the next 2-3 years. The debt itself isn't the problem, and my surprise that the interest rate is 8% is irrelevant (although surely it should track the base rate in some way?)

Regardless: the questions we have now are
1) Can the charge/debt be transferred to another house? The situation would be the same except that the charge would be against £10-22k of value in a different house to the one it is currently against. Or would this simply not be an option?

2) Does the above title register show that in fact there isn't a charge against the house? Or at least suggest it (we'll be checking properly ASAP, but would like to avoid a weekend of stress if possible)

3) Is there any reason to believe the above title register wouldn't hold the necessary information or could be incorrect? It was retrieved from the land registry website and I have no reason to believe it's not the correct title for the property, but I'm not sure if it's the document I should be looking at, nor whether it would include the information I'm looking for

Right now we're just trying to ascertain if there is indeed a charge against the house, and what we can do about it (other than paying the debt off immediately) to enable me to buy this house and her to buy another.

Tixy

That title suggests that there is no charge registered against the property.

If there was a charge I doubt very much that the beneficiary of the charge would agree to transfer it to another property.