A further post from another thread.

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Sorry to keep banging on about this, but I think it is such an important observation for people faced with charging orders. It explains in more readable language what happens when a house is owned by two (or more) people and only one is the debtor against whom a charging order is sought.

The growth in personal debt, together with property prices, has meant that charging orders have become a popular debt recovery tool. A creditor obtains a judgment against a debtor and then a charging order on the debtor’s property. A number of creditors, particularly in the finance and

debt purchase sectors, having converted an unsecured debt to one with some security, sit back and wait for the debtor to pay the debt off as and when the debtor tries to sell the property. Unfortunately, sitting back and waiting for payment carries a number of risks:

A mortgagee with an earlier charge on the property might repossess and sell the property at a time when there is insufficient equity in the property to pay all or even part of the debt to the creditor.

Property prices might go down, wiping out any equity in the property. If the original judgment does not attract interest – as could be the case for debts less than £5,000 or given in proceedings relating to the Consumer Credit Act 1974 – the value of the debt will be eroded over time by inflation.

Some creditors will perhaps apply for an order to sell the property rather than wait and take the risks.

However there is another, more fundamental, risk which creditors are beginning to come across in respect of charging orders obtained after April 2003. Where a debtor owns property with another person, for example husband and wife, the debtor and the other person can, despite the charging order, easily sell the property and pay nothing to the creditor.

Before April 2003

Once a charging order was obtained against a debtor over his interest in a property, whether he owned it solely or jointly, the charging order was registered as a caution at the Land Registry. This meant that the creditor or his solicitors would get 14 days’ notice from the Land Registry that the debtor and other

owner or owners were trying to get rid of the caution, probably with the aim of selling the property.

The fact that such notice had to be given meant that a debtor knew he could not sell the property before the creditor knew about it and took steps to prevent the sale. So the debtor would usually pay the creditor before selling the property.

Cautions which were registered prior to April 2003 still remain effective and the creditor will get 14 days’ notice of any attempt to get rid of the caution.

April 2003 and afterwards

The Land Registration Act 2002 (LRA) and Land Registration Rules 2003 (LRR) introduced significant changes to land registration procedures. Cautions were no longer to be used. Instead when a creditor obtained a charging order against a debtor:

If the property was solely owned by the debtor, or all owners of the property were debtors, for example husband and wife owning the property jointly and being joint debtors, then an ‘agreed

notice’ was to be filed at the Land Registry by the creditor. Effectively this was almost as good as

having a mortgage. The debtor could not realistically sell the property without repaying the debt to the creditor.

However, if the property was jointly owned by the debtor with other nondebtors, for example husband and wife owning the property and only one of them being the actual debtor, the creditor was not entitled to enter an agreed notice. Instead the creditor could only file a ‘restriction’ at the Land Registry in the

following terms: “No disposition of the registered estate is to be registered without a certificate signed by the applicant for registration or his conveyancer that written notice of the disposition was given to creditor...] being the person with the benefit of an interim/final charging order on the beneficial interest of [name of... debtor].”

This restriction was, and remains, practically useless.

The effect of the restriction

The debtor and his joint owner’s freedom to sell the property is not affected by such a restriction. They could sell the property as if there was no charging order against the debtor. All that was required was that the new buyers or their solicitor write to the creditor informing them that they now owned the property and then confirm to the Land Registry that they had given that notice. Then the buyers could register the property with no further complications. The creditor, who is sitting back, waiting to get paid, instead just receives a letter confirming that a sale has already taken place, typically a week or two after

the sale so there is little they can do to get the debt paid. In theory the creditor could apply for a freezing order against the debtor to try and obtain the cash from the sale proceeds. However, most creditors will

never make such an application:

The cost of applying for such a freezing order would run into thousands of pounds.

The debtor might have spent the cash from the sale of the property before the freezing order was obtained, so there is little, if anything, for the freezing order to bite on.

An effective restriction

A restriction worded as follows would provide a creditor with sufficient protection: “No disposition of the

registered estate is to be completed by registration without a certificate signed by [name the creditor with the benefit of the charging order and their address], being the person with the benefit of an interim/final charging order on the beneficial interest of [name of judgment debtor], or his solicitor that he was given written notice of the disposition at least 14 days prior to the disposition or without an order of the court which granted the interim/final charging order.”

If the wording suggested above were to be allowed, a creditor would have the right to be notified before a sale. The fact that such notice has to be given would mean that a debtor will know he cannot sell the property before the creditor finds out about the potential sale – and of course takes steps to prevent the sale until the debt is paid.

So the debtor will pay the creditor before selling the property. Perhaps at some stage, the LRA will

be amended to allow such an effectively worded restriction. In the meantime, a creditor which obtains a charging order against a debtor who owns property jointly could try to persuade the Land Registry to allow the more effectively worded restriction set out above. If that attempt fails then the creditor could apply to the court for an order that the Land Registry must allow that wording.

Application to the Land Registry

The Land Registry may approve an application to allow a restriction in non-standard wording if it appears:

That the terms of the proposed restriction are reasonable, and That applying the proposed restriction would be straightforward, and not place an unreasonable burden on him. In our view, the Land Registry should allow a restriction which actually gives some protection to creditors. However,

we have yet to make such an application and suspect that the Land Registry will not readily allow such non-standard wording.

Applications to the court

If the Land Registry refuses to allow a non-standard word restriction, then a creditor may wish to consider making an application to the court. Inevitably there are risks with this:

Creditors should bear in mind that if the application is unsuccessful then they will have wasted the costs of making the application.

So far as we can ascertain, an application along the lines suggested has not yet been made. A court may adopt a restrictive view and state that a creditor may have nothing other than the standard-worded restriction set out in the LRA.

Conclusion

The current protection afforded to creditors who have a charging order on property owned jointly by a debtor with others is useless.

Unless the creditor can persuade the Land Registry or the courts to allow a more effectively worded restriction, the creditor must look at other ways of recovering the debt.

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Also from a more recent post on MSE:

Received today from LR Solicitor;

LAND REGISTRY RESPONSE

"The provision of the Certificate mentioned in the Form K restriction means that the registrar is not prevented from proceeding with the application to register a disposition (for example, a transfer or charge) and the registration can proceed.

The certificate does not affect the restriction entry. A restriction in Form K may be removed from the register in the following circumstances.

Automatic cancellation

When a transfer of property is registered (following receipt of the required certificate) the restriction may or may not be automatically cancelled, depending on the circumstances of the transfer. If, for example, the application is to register a transfer by two or more proprietors to a third party for value, the trust interests will be overreached and the form K restriction will usually be cancelled"

Application to cancel in form RX3

If the charging order is discharged by the court, or if the debt secured by the charging order is paid in full, or for any other reason the restriction is no longer required, application may be made at any time to cancel the restriction. If such an application is made, notice will be served on the restrictioner and the restrictioner may object to the application. If the objection is not groundless, and the parties cannot come to an agreement, the dispute will be referred to the Adjudicator for determination"

So there you have it in black and white from the LR!

A Form K cannot prevent a sale as it cannot prevent a change in the registration if you have complied by giving notice to the Restriction Holder.

Also there is this, which whilst couched in legal jargon, supports the same contention:

Charging orders Linda Chamberlain, Land Registry’s director of education and training, gives guidance on how charging orders should now be dealt with

The Land Registration Act 2002 and the supporting Land Registration Rules 2003 came into force on 13 October 2003 and brought significant changes to the land registration system. The Act and Rules are important for all practitioners, not least because of changes in procedures for protecting third-party interests. Cautions against dealings and inhibitions have been abolished, and protection should now be sought through an agreed or unilateral notice, or a restriction. So, how should charging orders be protected?

Sole or joint proprietors?

If a charging order has been obtained against a registered title with a sole registered proprietor, a notice can be entered on the register to protect the priority of the equitable charge created by the charging order. If a notice is so entered on the register, then the property cannot be transferred free of the notice. But if there are joint proprietors, and you want to enter a notice on the registered title, you must ensure that the charging order charges the legal estate.

Does the order charge the legal estate?

To charge the legal estate of joint debtors, one charging order must be obtained which charges the legal and equitable estates of both proprietors. Ajointly held legal estate must be charged jointly as it is not possible to own an undivided share of a legal estate. Unless the whole legal estate is charged in the one order, it is not possible to apply for a notice to protect the charging order. If separate charging orders are made, this is only effective to charge the equitable estates of the debtors in the property. This is considered to be so even if the separate orders purport to charge the named party’s legal estate in the property, because that is on the face of it an attempt to charge an undivided share of a legal estate, which cannot be done.

Where separate orders have been obtained, what has been charged is the proprietor’s interest under a trust of land. Such an interest, or a charge on it, can only be protected by a restriction. That would also be the case where only one of joint proprietors was the judgment debtor. The charging order will be against that debtor’s equitable interest in the property. It may be protected by restriction.

What restriction?

The usual restriction to protect beneficial interests under a trust of land is a standard form A restriction (see box). That is because such interests can be overreached on a sale where capital moneys are paid to two or more trustees.

Where the proceeds of sale are paid to two trustees – even if those two are the same as the beneficiaries whose interests have been charged – the charging order is overreached and the creditor has to pursue the trustees for the money.

A standard form K restriction (see box) is also provided for persons having a charging order against the beneficial interest in property. The form K restriction is included in the Rules to enable a creditor to be made aware of a disposition. The creditor will then be in a position to pursue a claim to capital moneys held by the trustees.

I had added this thread, just to include some information about Charging Orders that has been added to a previous thread. As this may be useful for those that it concerns, I have made it sticky, so people are able to find it.

As with all things legal, always obtain advice from a solicitor and do not solely rely on any information obtained online.

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"I feel that this is so important that I thought a new thread should be made to highlight the importance of understanding the law on Charging Orders and how many people are stuck with their property in the false believe that they have had a Charging Order put on their property.

In particular the thousands of Northern Rock customers that have had unsecured debt turned into secured debt by their tactics.

If your property is jointly owned a creditor will not be able to obtain a CO against you, they can only get what is called a restriction.

The laws on Restrictions are totally different to Orders, the most important being there is NO OBLIGATION for you to pay any of the proceeds of the sale to the creditor.

However, during the whole court process you go through the reference from all parties (especially the creditor) will be to charging order and NOT to restriction. This is done in order to decieve you believing you are stuck with a CO.

However, not all solicitors are aware of the law in this regard and it is important that you raise this point with them in the first instance before proceeding with them

Quote:

Restriction


The restriction which can be entered on the register where a charging order is made against one of joint proprietors is in the following form :-
No disposition of the registered estate is to be registered without a certificate signed by the applicant for registration or his conveyancer that written notice of the disposition was given to [name of person with the benefit of the charging order] at [address for service], being the person with the benefit of [an interim] [a final] charging order on the beneficial interest of (name of judgment debtor) made by the (name of court) on (date) (Court reference.…).
You are therefore correct in saying that when the Land Registry receives an application to register, for example a transfer, we will not ask to see the consent of the person who has the benefit of the charging order. We will only want a certificate from the applicant for registration or his conveyancer that the person who has the benefit of the charging order has been given written notice of the transfer.

If both joint owners sell the land to a third party the restriction will be cancelled when the transfer to the purchasers is registered.


So I hope I have provided benefit to everyone who has had a restriction entered against them (especially NORTHERN ROCK CUSTOMERS) who believe wrongly that they are Charging Orders.

You now have the freedom to go and sell your houses with the knowledge that the vultures can do nothing "

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