A potential anti-Charging Order Strategy

[muscat329]

I don't know if this has been covered before on CAG. If so, apologies

 

This could apply to married couples with a conventional joint mortgage, who are not planning on getting divorced. With house prices on their knees this is a great time to do it. It assumes that you have a standard "joint tenancy" registered at the Land Registry

 

Steps:

1) Get several written house valuations from estate agents stating that you are looking at the value for a quick sale.

2) Work with the lowest, burn the others!

3) Deduct mortgage, estimated agents fees, estimated solicitors costs from the value to calculate the free equity in the house.

4) Divide by 2 to get the 50% beneficial interest of the debtor side of the couple.

5) Go and see a solicitor and request, a formal legal letter to state that you both agree to sever the "joint tenancy" agreement and substitute it for a "tenancy in common"

6) Solicitor draws up a trust deed for the debtor to sell 49% of his/her 50% to the other half. I kept 1% as I believe a remortgage would have been required and it would involve the mortgage company far more. As it was I said we wanted to do it for inheritance tax planning purposes (true!)

7) Next consideration is how to handle the sum of money involved, which is 98% of the 50% to get to the 49% sale. If it is zero or low you do not have a problem. If it is higher than you can handle, I think there are 2 choices. For us, my wife borrowed money from her mother and I used the money to repay some debts. However, a strategy which I have not tested is that you could give the buyer of the 49% a deferred repayment plan. You could draw up a formal loan agreement whereby the OH pays say £50 per month until the house is sold.

8) The solicitor must register the changes with the Land Registry.

9) When your creditor states they will go for a charging order, point out that you only have a 1% beneficial interest in the property, which in todays housing market is worth £3.75

 

I defeated an Interim Charging Order application following this strategy

 

Note, I am not legally qualified, so take your own legal advice before following this up.

Any comments from more knowledgable CAGers

regards,

 

Muscat

[ScabHunter]

Great Post. We can never have too many ideas, especially when those ideas have been proven to work, at least in one isolated case.

 

I have heard of this strategy of severing a joint tenancy being used as a way of defending the family home when one married partner has to go into long term care, but I have never heard of it being used in this way.

 

All ideas and comments greatly welcomed.

 

We really do need to think about putting together a 'database of possible strategies' for people coming to this site, as time is often critical.

 

SH

[UnmoderatetheNet]

I've skim read this and really not sure that would work could the writer give more details omitting personal data?

I thought that charging orders are based on land registry info rather than estate agents. Also imagine the costs reasonably high and would not suit someone in financial difficulty facing a charging order.

[ScabHunter]

I thought that charging orders are based on land registry info rather than estate agents.

 

Severing a joint tenancy is registered at the land registry using an RX1 form. It is actually free to do this.

 

Also imagine the costs reasonably high and would not suit someone in financial difficulty facing a charging order.

 

If you use a solicitor the costs will be high. It is not necessary to use a solicitor to sever a joint tenancy and register the RX1 form.

 

SH

[UnmoderatetheNet]

I was thinking mainly about this cost.

 

6) Solicitor draws up a trust deed for the debtor to sell 49% of his/her 50% to the other half. I kept 1% as I believe a remortgage would have been required and it would involve the mortgage company far more. As it was I said we wanted to do it for inheritance tax planning purposes (true!)

 

 

Firstly don't you need the mortgage company approval for this? Not in their best interest especially if they are the ones chasing the charging order.

 

The only people who could profit from this are the solicitors or para legals doing the trust deed, cynically is the original poster a solicitor?

[muscat329]

My solicitor charged £250. My mortgage Co is not one of my creditors, Yes you do need the mortgage company approval. That is why I kept 1%, ie I was not taking my name off the deeds, just rearranging the shareholding for inheritance tax purposes!

 

Unmoderatethe net, based on your last sentence, which is rubbish, you certainly are a cynic. My wife now sleeps at night knowing she has 99% of the house, which was not the case when I had aggresive DCA's chasing me. Cut me some slack, I'm trying to offer assistance to people who are not as pro-active as me in sorting out problems with "out of the box" solutions!

[UnmoderatetheNet]

Cynical from years dealing with DCA's. I make no excuses.

 

I would however advocate thinking outside the box and if this has worked for you as you state and you've chosen to share it then that's why CAG is here.

 

I still would like other expert on here to pick holes in it.

 

If at the end its sound then credit where its due for raising it as an option.

 

 

 

 

 

 

As a post script it's great for repo. avoidance tricks to be shared on here, especially with an increase in homes being stolen by banks now hovering around a 70%.

 

ideas like this have been around for years Protect your pad by becoming a tenant (and not paying rent) | Money | The Observer

 

So why so few posts on putting houses in trust to avoid the DCA?

Edited November 4, 2008 by UnmoderatetheNet

[sequenci]

The only concern with a tenancy in common is that things would get VERY messy if one of you were to die. Under a joint tenancy the surving person would automatically have the other share of the house pass to them. Under a tenancy in common there would need to be a succession registered under a will or whatever. Under a tenancy in common it may be easier for the creditor to try and get payment from the estate if the debtor dies.

 

Also, couldn't a creditor obtain a charging order even if there is no equity?

[dpick]

Just a thought but would this not be classed the same as a buy and rent in that they would have to inform both parties that they were applying for a charging order and majority owner would be able to have the charging order struck out. Not to sure of the why's and wherefore's of this just know that my niece has debts and she is in a rent and buy with a housing association and when a DCA tried to get a charging order the housing association had this struck out at court.

 

dpick

[surfaceagentx20]

I have to say this is an especially hazardous anti-charging order measure and not one I would recommend.

 

To begin with, whether to grant a charging order application is a discertionary one. In the OPs case the Judge decided to exercise his discretion by declining the application. It was not as if he was compelled to decline the application. A judge may have allowed the application since this is not a case where the OP was able to show he had no beneficial interest in the property.

 

However, that is not my main concern. My main concern is that by presenting the grounds for declining the application for a charging order in the way he/she did will have revealed to the creditor the real likelihood that the disposition of the debtor's beneficial interest in that property was a transaction intended to place his/her property out of the reach of his/her creditors.

 

Doing that would be to encourage the creditor to bring bankruptcy proceedings against the debtor in order to divest the co-owner of the fruits of that transaction and for that property to be vested out of the hands of the co-owner and into the hands of the debtor's trustee in bankruptcy.

 

To avoid such consequences it would have been necessary for the co-owner to have paid to the debtor the market value or 'as near as', of the debtor's interest in the property which was transferred. If this was not paid or was a gift, the transaction will be treated as a transaction at an undervalue and will swiftly gain the attention of the trustee in bankruptcy by reason of the provisions of Insolvency Act 1986 sections 338-342. To avoid the provisions of these sections the transfer would have been made in excess of five years prior to the presentation of the bankruptcy petition.

 

If I represented the OPs creditor I would be suggesting that the proper route to take following the dismissal of the charging order application was to seek a bankruptcy order against the debtor.

 

x20

[citizenB]

Thanks for clearing that up x20. I did think that there would be a hitch somewhere.

[surfaceagentx20]

To clarify, in this case the OP said he set up a deal with his wife where money actually exchanged hands and was worth the value of the interest provided in return. So long as that actually was the case there would not be a transaction at an undervalue though the use of that money to pay some debts but not others might amount to a preferment.

 

In short, the OP was able to take advantage of the fact that his partner's mother had cash to spare.

 

I wished to highlight the risk which would exist where a real, market value cash payment was not exchanged for the property interest transferred. So long as the OPs creditor knows real proper money exchanged hands, there shouldn't be a problem apart from the preferment risks.

 

x20

[muscat329]

My solicitor was concerned about ensuring the transaction was not done at an undervalue. That was why I provided him with a written estate agent's valuation and offset the mortgage plus selling costs to get the total free equity. Cash did change hands, although if I had drawn up a loan agreement and allowed my wife to pay in instalments I am not sure that a conventional DCA creditor would fight this arrangement in court.

 

I am not corncerned about post death complications.

 

This is not for everyone, it has worked for me once, but it might not work the second time. However, I am more relaxed now about a CO against my 1%. My solicitor was happy that what I had executed would be difficult to overturn because it was not done at an undervalue.

 

regards,

 

Muscat

[surfaceagentx20]

OK. Cool.

 

x20