New Charging Order rules: £1,000 debt could force house sale

[Michael Browne]

Whether they know it or not, more than 700,000 households in England and Wales are at risk of losing their homes over debts as small as £1,000. New rules come into effect today governing the way that creditors can force the sale of property in order to repay outstanding sums on payday loans, credit cards and other forms of consumer debt.

 

The new regulations – the Charging Orders (Order for Sale: Financial Thresholds) Regulations 2013 – could prove controversial for two reasons.

 

First, they represent an about-turn by the Government, which had indicated in the Coalition Agreement in 2010 that a threshold of £25,000 would be set rather than the £1,000 limit that takes effect today.

 

Second, the numbers of people with charging orders on their property who could then go on to lose their homes could surge as house prices rise. Once a charging order exists on a property, the owners are only a step away from losing their home as their creditors can ask a court to force a sale in order to satisfy the debt. Just over 400 sales orders were made in 2011, the last year for which there are statistics.

 

Rising house prices mean that there is more equity in homes and that creditors are likely to get their debts paid from that equity if they force the sale of a home. House prices appear to be moving upwards after five years of stagnation.

 

StepChange, a free debt advice charity, is perturbed by the move to set a £1,000 threshold. Peter Tutton, head of policy, says: "The Government have reneged on their promise. We think there isn't sufficient justification." He believes that there will be more charging orders given in future, up from the 81,000 made in 2011 or the 93,000 in 2010. "I'd be surprised if we don't see more charging orders because it's easy for creditors to get them," he adds.

 

http://www.independent.co.uk/money/loans-credit/1000-debt-could-force-you-to-sell-your-home-8562606.html

[citizenB]

They will be used in the same manner that Statutory Demands are being used at the moment - as a Debt collection tool.

[eggboxy1]

Whether they know it or not, more than 700,000 households in England and Wales are at risk of losing their homes over debts as small as £1,000.

 

Whilst nobody can deny the ease with which a creditor can now obtain a Charging Order, I think the extreme difficulty a creditor has in obtaining an OFS has to weighed up against what you are stating (certainly where consumer debt is concerned.)

 

The Ministry of Justice even confirmed, in the consultation paper that brought about the £1000 limit, that there is now case law preventing an OFS on family and primary residencies. And whilst, in theory, a creditor with a CO can pursue an OFS, the Court statistics that reveal that only 5 in 1000 CO's are ever pursued to a OFS stage highlight the known difficulty by creditors in obtaining them.

 

The main reason a Charging Order is pursued by a creditor is to secure and prioritise their debt owed, but we shouldn't be helping them further by heaping unnecessary pressure on debtors who may not be in possession of all the facts.

[Stirling2005]

If a DCA does successfully obtain a Charging Order then an amendment to legislation is urgently needed to grant a breathing space of six months to allow debtors to reorganise finances. If not, It is possible many thousands more families will be.homeless placing a huge burden on council tax payers already stretched due to increased homelessness as a result of welfare reform. I would ideally like to see OFS suspended for a year to thwart growth in debt industry.

[eggboxy1]

Again, the difficulty a creditor has in obtaining an OFS has to be weighed against the ease with which they can obtain a CO.

[citizenB]

 

 

Rising house prices mean that there is more equity in homes and

that creditors are likely to get their debts paid from that equity if they

force the sale of a home. House prices appear to be moving upwards after five

years of stagnation.

 

This is nonsense. A lot of home owners will have no equity in their home.

[comebackjimmy]

I would like to see at least one minor change to the charging order regime and that is that a loan, for example a credit card or something similar which will have started life as an unsecured loan with a correspondingly higher interest rate should not be allowed to be converted to in effect a secured loan. Charging orders should not be allowed on these types of transactions as the interest rate charged reflects the risk of default. Currently the lender is having his cake and eating it.

 

Other kinds of debt such as trade debt etc might be a different matter, but not unsecured cash loans.

[Old Cogger]

you are correct it is imoral to say the least = well so have the pergatrators of it!

[eggboxy1]

From Barclay's "Loan Jargon Buster" webpage that explains the different type of loans available,

 

"UNSECURED LOANS

 

Unsecured loans are available if you don't own your home or don't want to secure a loan on your property."

[sickasapig]

Well I have 3 charging orders in my property all for over £1000, but there is no equity in my home and I am currently £1500 in arrears on my mortgage anyway. So personally i'm more worried of my mortgage provider taking the house than the scumbags that turned an unsecured debt into a secured one.

[needhelp2011]

I thought that the creditor could always force the order for sale whatever the amount and the 25000 threshold was to protect people with charging orders for small amounts.

 

Perhaps someone could tell me what the situation is if you have a charging order under 10000 with quite a lot of equity in the property. The property is our main home and I own it jointly with my partner. We have not moved home in about 35 years. The debt is not a joint one .Would a OFS succeed in theory.

[Old Cogger]

Restriction on property if jointly owned can only be placed on it, and be honest if you sold at a leter date it has been said that a credfitor would be infomed of a sale at a later date after any sale, and in most cases when you have left the country or moved on. look at the Land registry site they have full information on this aspect to double check?

 

 

As for a £25.00 threashold - Camerooooonn and cronies "U" Turned on that one as usual in favour of the crooked DCAs etc.

[needhelp2011]

Hello - thanks

pretty sure its a charging order not a restriction - will look tonight and pop back on if that's OK. If it is a CO may need some more advice.

[postggj]

I take it even if a property has a charging order on it, i cant see a judge authorizing the sale of a family home to pay a relatively small debt

 

As long as the judge can see you are making reasonable attempts to clear your obligations within your means

 

The judge will have the final say through judicial interpretation. As a rule, judges are fair and uphold justice and rights or ordenairy people

[eggboxy1]

Hello - thanks

pretty sure its a charging order not a restriction - will look tonight and pop back on if that's OK. If it is a CO may need some more advice.

 

It will be a Charging Order but, if you jointly own the property and the debt is solely owned, the CO can only be made against your Beneficial Interest (your share of any equity in the property). This type of Charge can only be notified on the Land Registry by a Restriction notifying anyone who has an interest in buying the property that a Charging Order has been made against one of the owners. A Restriction, however, confers no right of automatic payment to the creditor if and when the property is sold. The Restriction also becomes "over reached" when the property is sold for a "valuable consideration" and is automatically removed by the Land Registry, as such, providing the terms of the Restriction have been met. The most common form of Restriction for this type of Charge is a Form K which only requires the Restriction holder to be notified that a sale has occurred.

 

A creditor can apply for an Order For Sale with any Charging Order but the chances of them getting them on Primary of family residencies are virtually nil. Judges have much wider powers of discretion on granting an OFS and, has also been mentioned, there is now case law preventing such a move on those Primary and Family residencies.

[needhelp2011]

Hello

Have looked at the Land Reg and it says Restriction. Does Primary or Family home matter even if we do not have kids?

Thanks

[eggboxy1]

Hello

Have looked at the Land Reg and it says Restriction. Does Primary or Family home matter even if we do not have kids?

Thanks

 

No, the case law taken into consideration by the MOJ that protect family and primary residencies were as follows;

 

 

Caselaw - 'Mesher' type orders – provides protection as long as a minor is resident at the property concerned. The use of such orders was confirmed by a ruling in the case of Harman vs. Glencross 1986. Further powers are provided in the Trusts of Land and Appointment of Trustees Act 1996.

 

Caselaw - Royal Bank of Scotland vs. Etridge 2001 - This case established the precedent that, where a joint loan has been taken out by, with a jointly owned property as collateral, such as the matrimonial home, it is incumbent on the lender to explain to all lendees at the time of signing the potential consequences of default. In this case it was ruled that one party had signed the forms without being informed by the lender of the possible consequences and that the Royal Bank of Scotland did not have the legal right to enforce by way of charging order.

 

Caselaw - Bank of Ireland Home Mortgages vs. Bell 2001 - This case established the circumstances in which an order for sale would be granted, even if it concerns a family home. The equity available on the property must be sufficient to pay off the judgment creditor and all other interested parties and still leave enough money to adequately rehouse the debtor and dependent.

[WelshMam2009]

 

"UNSECURED LOANS

 

Unsecured loans are available if you don't own your home or don't want to secure a loan on your property."

 

This is the primary reason why I am disgusted by this new legislation.

The risk of unsecured loans is reflected in the higher interest rates charged by lenders and is intended to cover bad debt.

Mortgage interest rates are much lower because they are secured against assets such as property.

The point is, Charging Orders should NEVER be granted for unsecured loans. It fundamentally alters the terms upon which the contract was entered in to.

Win-win for lenders yet again I see!!

[citizenB]

I have just found this petition that people might want to sign.

 

https://submissions.epetitions.direct.gov.uk/petitions/48464

 

 

 

We call on the government to stick to the original promise to raise the

threshold of Charging Orders (CO's) to £25,000. Justice Minister Helen Grant

reckons by increasing the threshold it would lead to more Bankruptcy (BR)

petitions being presented so we also call on the BR threshold to be raised to

£25,000 as well.

 

 

The problem we have is that allowing DCA's to go for a charge on an unsecured

debt is tantamount to mis-selling as all unsecured credit must therefore come

with a warning that it could become secured and thus you could be in a much

worse financial position. Additionally, higher APR's for unsecured lending

should be abolished as all lending would technically become secured meaning

lower rates should be offered across the board.

[eggboxy1]

Thanks and signed.

 

Anyone bothering to read the MOJ consultation paper that decided on the £1000 limit will see the Government caved on the £25,000 limit as THEY believed it would cause more bankruptcy. But that speculation was not based on the information supplied by the creditors who stated that a higher CO threshold would cause them to "review their lending practices".

 

Anyone who has applied for a loan over the last three years will see that they have already done that as it is far, far harder now to obtain credit. It is also far harder to obtain a low rate APR; so with these new safeguards (and risk elimination) already in place I cannot see why the availability of a CO should still be on the table for creditors who are offering high rate "unsecured" lending and still advertising that this type of loan doesn't involve putting up your house as security.

[WelshMam2009]

I have just found this petition that people might want to sign.

 

https://submissions.epetitions.direct.gov.uk/petitions/48464

 

Thanks CB...have signed.

 

Is there anyway we can raise the profile of this petition on CAG?

 

I'm not sure if debtors realise the impact this legislation could have on them. At the moment, the petition has less than 100 signatures which is pretty insignificant, given the population of the UK.

 

I shall be promoting this petition on my Facebook page and Twitter. I shall also be contacting my MP.

 

Supporting this petition, does not mean that you are letting anyone know that you have debt problems. It simply means that you are opposed to the granting of charging orders for unsecured loans.

 

Many thanks to everyone. I should confirm that I am not directly involved with this petition but feel so strongly about the unjust way in which vulnerable people are treated.

[citizenB]

It has been linked in the newsletter hopefully that will bring in a few visitors

 

I can also pop it on twitter again.

[geriann]

i'll sign & share on Facebook

 

does CAG have a Facebook page?