Registering charge on property

CrazyM101

Hi all, bit of a long one so please bear with me.

Approx 3 years ago, I lent a close family member approx £50,000 to help them with house renovation/extension. The amount was agreed and signed for and I paid in stages over a few months.

The agreement was that it would be paid back in full, two years after the last payment from me - they were either going to sell the house or remortgage to raise the funds.
Unknown to me, they had financial problems a year after house works finished and filed for bankrupty. Now they can't sell the house (as they will not be able to get a mortgage on a new property or get a re-mortgage).

The house is owned in 3 names (as tenancy in common between relative, spouse and spouse's brother) and is freehold.

It turns out that there are other charges already on the property and I am concerned that there may not be enough after any house sale to pay creditors and me back.

Also is the charge made that if/when the house is sold, the outstanding debts are paid first before any remaining amounts (if there are) is split between the owners. I want to make sure that this is the way it works rather than the money coming from my relative's share only as there may not be enough left from their share to pay me out.

I am aware that I have to go to court first and get the charging order, can someone please guide me as to which form I need, which court to apply to and what evidence I will need to provide? I assume I can use small claims procedure for this but please confirm?

Thanks for any help/suggestions!

user1977

The bankruptcy would seem to complicate matters, especially if you weren't contacted about it as a creditor? I take it you didn't get a charge over the property in the first place?

GDB2222

As an unsecured creditor, the outlook is bleak.

CrazyM101

user1977 said:

The bankruptcy would seem to complicate matters, especially if you weren't contacted about it as a creditor? I take it you didn't get a charge over the property in the first place?

No I didn't as we were not aware of any complications.

I have a signed agreement that the funds were used to improve the house and that they will be paid back, can I not use that in any way?

It was witnessed by an unrelated 3rd party

user1977

CrazyM101 said:

user1977 said:

The bankruptcy would seem to complicate matters, especially if you weren't contacted about it as a creditor? I take it you didn't get a charge over the property in the first place?

No I didn't as we were not aware of any complications.

I have a signed agreement that the funds were used to improve the house and that they will be paid back, can I not use that in any way?

It was witnessed by an unrelated 3rd party

You can't retrospectively register it as a charge, if that's what you mean - and even if you could, it would rank behind the pre-existing chargeholders.

And in any event, it sounds like what ought to have happened is that the debt ought to have been dealt with in the bankrupty, i.e. you should have got x% of whatever the debtor's available assets were at the time (and then the debtor makes a clean start). I'm not sure exactly what the process is where a debt has (for whatever reason) not been taken into account in a bankruptcy.

wilfred30

If you take your relative to the Small Claims Court, the maximum you can claim is £10k.

However, if they don't sell the house, you're unlikely to even get that much.

Even if you do, I think it's highly likely that you will not see the other £40k as you didn't put a charge on the house at the time.

CrazyM101

Ouch, I was obviously very naive about this. I had no idea a charge has to be registered as soon as you lend money!
They are adamant that I will get my money back at some point e.g. they're not ignoring me or denying the debt is owed but I need to try and protect my interests legally.

Re - and even if you could, it would rank behind the pre-existing chargeholders.

How would I go about doing this, I need to do something, even if the chance of success is minimal.

user1977

CrazyM101 said:

Ouch, I was obviously very naive about this. I had no idea a charge has to be registered as soon as you lend money!
They are adamant that I will get my money back at some point e.g. they're not ignoring me or denying the debt is owed but I need to try and protect my interests legally.

Re - and even if you could, it would rank behind the pre-existing chargeholders.

How would I go about doing this, I need to do something, even if the chance of success is minimal.

You can't if they didn't sign a charge in the first place. And like I said, I think that ship may have sailed if they've been declared bankrupt since you lent the money to them - your claim would have been in their bankruptcy.

Slithery

CrazyM101 said:

Ouch, I was obviously very naive about this. I had no idea a charge has to be registered as soon as you lend money!
They are adamant that I will get my money back at some point e.g. they're not ignoring me or denying the debt is owed but I need to try and protect my interests legally.

Re - and even if you could, it would rank behind the pre-existing chargeholders.

How would I go about doing this, I need to do something, even if the chance of success is minimal.

Legally there is nothing you can do about it if the charge wasn't registered before they went bankrupt as all of their other debts have now been written off and ceased to exist - that's what bankruptcy means.

Section62

CrazyM101 said:

Ouch, I was obviously very naive about this. I had no idea a charge has to be registered as soon as you lend money!
They are adamant that I will get my money back at some point e.g. they're not ignoring me or denying the debt is owed but I need to try and protect my interests legally.

If you are looking for something positive out of this, as a family member if they had repaid the loan within two years of their bankruptcy then the OR could potentially have asked you to pay the money back for redistribution among all the creditors. (if the OR regarded the repayments as "preferences")

The situation you are in is possibly not as bad as it could have been.  If their debt to you had officially been included in the bankruptcy then they may have subsequently taken the moral line that you received your due share through the bankruptcy process (even if that share was zero) and they don't need to pay anything more.

By the debt being outside the bankruptcy they may feel slightly more morally obliged to find a way to pay you back... but only morally, not legally obliged.

I don't know if the same applies with bankruptcy, but I do know that family/friends debts can optionally be kept outside an IVA and dealt with once the IVA is completed.  Again, if that does apply to bankruptcy as well then being outside might have worked in your favour.

Given the sums involved you really should seek advice from a solicitor specialising in bankruptcy to work out the best way forward.

CrazyM101

Thank you all for your prompt responses. Obviously, in hindsight I would have done things differently but we live and learn.
Hopefully other people will be able to find this thread and make better decisions before they lend money out to friends and family.

I am still confident that I will get the money back due to as stated by Section62, their moral obligation rather than a legal obligation.

I'll discuss with a solicitor and update this post if there is any change in this situation.