Charging order query

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    Charging order query

    Quick question - if a property has been repossessed but remains unsold by the bank - mortgagee-in-possession - can someone still get a charging order against the property?

    #2
    I cannot think of any reason why not. The property still belongs to the borrower.

    Comment


      #3
      What happens with negative equity?
      I read somewhere that if the property gets sold the 1st charge gets all the proceeds. If no money left what happens to the charging order (2nd charge) which can't be repaid? It reverts to an unsecured debt? Which can't be repaid?

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        #4
        Sounds like a FH question, in similar situation I saw, after repossession the guy who bought the LH from the bank was made liable for the outstanding charges of the bankrupt previous LH.

        All the while the bank was in possession they did not pay any of the service charges so next LH caught them too.

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          #5
          HP mum,

          If there is negative equity and the first chargee sells as chargee he takes does indeed take all the proceeds and all subsequent charges become unsecured and the buyer takes free of all the charges. However, the borrower will not be able to sell unless he pays off al the charges.

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            #6
            Thanks.
            I understand then that a borrower can't sell unless he pays off all charges. But in the case of repossession the borrower is not in control of the sale process. A receiver/ bank is. So if they decide to sell at a level that just about clears their security - or maybe doesn't clear it at all and leaves a shortfall - then what happens to the someone with a 2nd charge? The 2nd charge can't prevent the receiver/ bank selling can they?

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              #7
              A chargee selling owes a duty to the borrower and all those interested in the equity of redemption to sell at the best price reasonably obtainable.

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                #8
                Thanks Lawcruncher
                As i understand the situation then:
                1st chargee selling the repossessed property is obliged to do 'their' best to achieve best selling price. They won't be able to ride out the bad economy/ low prices or covid lockdowns just to try and get a better price in 1-2 years - as delaying any sale will increase amount owing by borrower.
                So 1st chargee sells - now - at best price reasonably obtainable.
                Then 2nd chargee and the original borrower get zero - and there is nothing they can do.
                And the amount owed to the 2nd chargee becomes unsecured again. Still owed.

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                  #9
                  Yes, except that it is not that the first chargee must sell to avoid interest adding up, but that the first chargee has no obligation to wait for the market ti improve.

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                    #10
                    The mortgagee in possession will normally sell as soon as possible because it can be held liable if it decides to hold the property and then values fall.
                    The first mortgagee will take the monies owed to it including its costs. If there are any monies remaining, the 2nd mortgagee will be paid and finally if there are still monies remaining, the borrower will receive the balance.
                    The borrower remains responsible for any shortfall owing to both mortgagees after the sale of the property.
                    When you say that the 2nd mortgagee and the borrower get zero and there is nothing they can do, that only applies if the 1st mortgagee has acted reasonably and the sale proceeds of the property are insufficient to repay the 1st mortgagee in full.

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                      #11
                      For a very full discussion see here: https://26kl0k15gghr18bm1c30oj85-wpe...f-Property.pdf

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