Equitable Charge on Propery
Discussion
Edit : Title should read Property, not Propery.
A friend owes me some money (~£10K)and has agreed that I can put a charge on his house. I understand this is called an equitable charge rather than a legal charge(?).
The friend is the sole name on the deeds although his family live in the house. I have no desire to force a sale at any time, the whole point of the original loan was to help him and his family out.
There is very little equity currently in the house (<£10K) but the mortgage is being paid so the equity is building up.
He is (realistically) expecting a lump sum in 18 months time which would cover the debt.
Some questions for you:
1. For the paperwork, should I use a solicitor or is this a simple matter for a conveyancer. Any recommendations for someone suitable in the Cambridge area?
2. There are other charges on the house (plus the mortgage). Is it correct to assume that I would be paid last in the event of a house sale.
3. Is any interest automatically added or should a figure be included in the paperwork?
Thanks all.
A friend owes me some money (~£10K)and has agreed that I can put a charge on his house. I understand this is called an equitable charge rather than a legal charge(?).
The friend is the sole name on the deeds although his family live in the house. I have no desire to force a sale at any time, the whole point of the original loan was to help him and his family out.
There is very little equity currently in the house (<£10K) but the mortgage is being paid so the equity is building up.
He is (realistically) expecting a lump sum in 18 months time which would cover the debt.
Some questions for you:
1. For the paperwork, should I use a solicitor or is this a simple matter for a conveyancer. Any recommendations for someone suitable in the Cambridge area?
2. There are other charges on the house (plus the mortgage). Is it correct to assume that I would be paid last in the event of a house sale.
3. Is any interest automatically added or should a figure be included in the paperwork?
Thanks all.
Edited by rotarymazda on Tuesday 9th September 12:52
There is a practical reason for using a conveyancer or solicitor and that comes from the Land Registry requirement for identification evidence in respect of each side of the deal - owner and chargee. Without legal involvement on both sides identification requirements are a pain.
The downside is that this pushes up the costs but that is the case wherever there is a property interest.
The downside is that this pushes up the costs but that is the case wherever there is a property interest.
£10k is a lot of money to lend a friend, especially if you are sufficiently uncomfortable with prospects of repayment to justify putting a charge on his home. Is there not a danger that you would fall foul of money lending rules if you try and legalise the loan, do you have a credit licence etc, or is that not applicable?
It just sounds quite heavy-handed for a loan to a friend.
Paul
It just sounds quite heavy-handed for a loan to a friend.
Paul
rotarymazda said:
1. For the paperwork, should I use a solicitor or is this a simple matter for a conveyancer. Any recommendations for someone suitable in the Cambridge area?
2. There are other charges on the house (plus the mortgage). Is it correct to assume that I would be paid last in the event of a house sale.
3. Is any interest automatically added or should a figure be included in the paperwork?
Thanks all.
1. Yes (ETA: yes to "use a solicitor"). And make it a legal charge. 2. There are other charges on the house (plus the mortgage). Is it correct to assume that I would be paid last in the event of a house sale.
3. Is any interest automatically added or should a figure be included in the paperwork?
Thanks all.
2. Yes.
3. Specify in the charge that it secures the principal sum (£10k) plus interest at a rate of x% pa until payment.
Edited by anonymous-user on Tuesday 9th September 14:11
Greg66 said:
rotarymazda said:
1. For the paperwork, should I use a solicitor or is this a simple matter for a conveyancer. Any recommendations for someone suitable in the Cambridge area?
2. There are other charges on the house (plus the mortgage). Is it correct to assume that I would be paid last in the event of a house sale.
3. Is any interest automatically added or should a figure be included in the paperwork?
Thanks all.
1. Yes. And make it a legal charge. 2. There are other charges on the house (plus the mortgage). Is it correct to assume that I would be paid last in the event of a house sale.
3. Is any interest automatically added or should a figure be included in the paperwork?
Thanks all.
2. Yes.
3. Specify in the charge that it secures the principal sum (£10k) plus interest at a rate of x% pa until payment.
1. Your call. The important point is to find someone who has the necessary expertise. A hack conveyancer who only normally deals with mortgages is unlikely to be the best bet.
2. As above.
3. Before you can do that you need to decide whether the interest rate will be floating or fixed.
It may be years before you can recoup the principal sum. Any fixed interest rate will need to take inflation into account (just as with a mortgage).
Red Devil said:
OP, I suggest you read this before cracking on - http://www.practicalconveyancing.co.uk/content/vie...
...
It may be years before you can recoup the principal sum. Any fixed interest rate will need to take inflation into account (just as with a mortgage).
I'll start reading that, thanks....
It may be years before you can recoup the principal sum. Any fixed interest rate will need to take inflation into account (just as with a mortgage).
I don't need the money back any time soon but don't want to lose it forever. My friend was in a serious car accident and will be unable to work for a while.
The problem you may end up causing your friend is that as I understand it any legal charge you take out on the property comes first before the mortgage provider. They tend not to like this as they want first go on the property should there be a default - so you might find that they insist on the charge being cleared or possibly withdraw their mortgage i.e. expect it to be repaid. So your friend would then need to try and find another mortgage where the mortgage company do not hold the first charge (unlikely).
In the end he might need to extend his mortgage by £10K to repay you in order to get the charge removed and as such my not be any better off (in fact will be worse due to legal fees etc.).
IANAL - but my sister put a charge on the house of a local thieving scrote - it was great when he came grovelling back asking for her to please accept the payment to remove the charge. It was surprising how long it took my sister to fill out some simple forms and how increasingly grovelly he got the longer it went on. Ain't karma a b
h!
In the end he might need to extend his mortgage by £10K to repay you in order to get the charge removed and as such my not be any better off (in fact will be worse due to legal fees etc.).
IANAL - but my sister put a charge on the house of a local thieving scrote - it was great when he came grovelling back asking for her to please accept the payment to remove the charge. It was surprising how long it took my sister to fill out some simple forms and how increasingly grovelly he got the longer it went on. Ain't karma a b
h! elanfan said:
The problem you may end up causing your friend is that as I understand it any legal charge you take out on the property comes first before the mortgage provider
I'm not sure where you get that idea from.Any charge taken by the OP would rank behind existing charges already registered against the property.
elanfan said:
The problem you may end up causing your friend is that as I understand it any legal charge you take out on the property comes first before the mortgage provider. They tend not to like this as they want first go on the property should there be a default - so you might find that they insist on the charge being cleared or possibly withdraw their mortgage i.e. expect it to be repaid. So your friend would then need to try and find another mortgage where the mortgage company do not hold the first charge (unlikely).
Where do you get that one from? No mortgage lender is going to advance funds other than by deed and the accompanying first charge registration against title to the property.Equitable and legal charges are very different. With the former, in the event of non-payment of the debt, the creditor’s right of realisation is by judicial process i.e. by the appointment of a receiver or an order for sale. With a legal charge, the mortgage lender can refuse to allow a second one to be registered. An equitable charge may then be the only option. The mortgage lender may be less likely to object as its position is better protected. As far as the OP is concerned an equitable charge is more for nuisance value than protecting his money.
OP, as might be expected this has been discussed before, for example here - http://www.pistonheads.com/gassing/topic.asp?t=713...
The first thing to do is get proper legal advice otherwise it could all go south.
Gassing Station | Speed, Plod & the Law | Top of Page | What's New | My Stuff