"Buying out the ORs interest" - what is the risk and what is the benefit?

cheekychappie54

Hello. I'm very new to all of this. Brief summary - I lent a considerable amount (six figures) on an unsecured basis to an ex-friend, who after losing through the court declared herself bankrupt. She has several BTL properties and the interest is now vested in the OR. There are a few unsecured creditors, but I am the largest by a long way. I have a solicitor working for me but he is very expensive and this is taking a long time to play out. One property has been sold and looks as if it might realise a small profit (Yay)!


My question concerns one of the others. The charge on it is about £135,000. Zoopla says it is worth about £150,000 but I know this isn't accurate. My solicitor is asking - do I wish to make an offer to buy out the interest of the OR for £1. Can anyone advise please.


1. I know that 'buying out the interest' isn't the same as becoming the legal owner of the title. So, if I do this, what do I become the owner of? And what do I become liable for? If I think this property could, in fact, on sale realise a profit of around £10,000 - is it worth my while? What are the risks? How can I best maximise the potential here?


Nub of the issue is - I don't understand the difference between owing the "interest" and owning the deeds. Please help.

tigerfeet2006

Sorry haven't got time for a long reply but as far as I'm aware you can not buy the BI for a £1 anymore.

debt_doctor

Hi,


I cant see why the OR would sell you the BI for £1 if there is £15000 equity in the property? The OR will want what it is worth, which if solely owned will be £15k potentially less what sale costs would be (the negotiable area).
When someone buys a BI, they do it in one of two ways;
1) Simply to help the bankrupt out with no legal value to the purchaser (not likely in your case I imagine)
2) As an investment, formally registered at the land registry, and gaining a future share of any rising value (or loss of value)

More importantly, I think you should be aware of a few things. There is an order of importance regarding payout in bankruptcy.
Out of any profit the case management fee gets paid first (£1715.00) then the Secretary of State fees (more complex but at least another £2500).
If the BI (from this sale) is deemed to be £15k, then that will go in to the BR pot to be shared out to case M fee, SoS fees and IP fees - and THEN creditors.
IPs fees make Wonga's interest rates look reasonable, and I often find that the IPs fees often use up the rest of the profits to the bankruptcy estate - often up to £40 or £50 000.
If there are other properties to sell, the release to the estate (if any) could take years.
So in a nutshell, if the profit to the estate is up to £40 - £50000, it is often the case that the IP will get rich and the creditors will get nothing.
You need to look further at this to ascertain if your legal fees are 'good money after bad'.
DD

tigerfeet2006

Thanks DD, that saves me a lengthy reply.

The fact your solicitor doesn't seem to understand about BI rings alarm bells about what he knows about the complex subject of BR.

cheekychappie54

Thank you both. I very much appreciate your time. Can you tell me though, what is BI? BR? M? and particularly IP?

luvchocolate

B.I ..beneficial interest

B.R Bankruptcy

I.P insolvency practitioner.

there is a thread that explains all the abbreviations sorry but no idea how to link you to it!!,

cheekychappie54

Thank you. In this case I think the IP, then is the OR I refer to. Would buying out the BI (for an agreed sum if not £1) limit the Wonga-high fees payable to them? There seems to be a bit of money in the estate, on the face of it, I would rather this went to creditors (including me) if at all possible. I understand there may be some liability that passes with this, but I don't yet fully understand what those risks / liabilities are.

debt_doctor

cheekychappie54 wrote: »

Thank you. In this case I think the IP, then is the OR I refer to. Would buying out the BI (for an agreed sum if not £1) limit the Wonga-high fees payable to them? There seems to be a bit of money in the estate, on the face of it, I would rather this went to creditors (including me) if at all possible. I understand there may be some liability that passes with this, but I don't yet fully understand what those risks / liabilities are.

Buying the BI will not influence the fees or any matters about how much you might receive from the eventual BR funds.
If indeed this case still remains with the OR (rather than an IP) then it is wholly in your interests to keep it that way as the fees are legally controlled.
If the IP's become aware that there are properties that can generate money they will be circling like sharks. One interesting point is that as by far the major creditor you should be able to have influence when it comes to choosing an IP.
If I were you I would keep in close contact with the OR, reminding that you are by far the largest creditor and to ask them to deny opportunity to any IP.
DD.

debt_doctor

.....also, what is happening with these buy to let properties? Are the mortgages still been paid? - I wouldn't think so as the BR will not be able to keep the rent and the OR will want to off load them quickly if there are tenants because the OR will hold full landlord responsibilities, and they do not like that.
DD

cheekychappie54

Thank you debt doctor. This is the most advice/ interpretation I have had in almost a full year. The BTLs are currently being administered by the holders of the charge (as I understand it). The BR isn't receiving the rent, as I understand it. The OR isn't being forthcoming with info - this is all being dealt with by my sol. One has been sold. One at least is generating rent which as I understand it is being held by the OR. It is likely that they are all let and generating rent. I know that the mortgages are high, but it is unlikely in these times (as they were remortgaged just before BR) that the mortgages will be more than 80%.


One of the most difficult things I have found is to get impartial advice in my situation. I don't even trust a solicitors advice - "good money after bad" etc

cheekychappie54

When I say 'holders of the charge' I mean lenders.