Orders for sale and charging orders
A home owner can be evicted if a court grants an 'order for sale'.
A court may grant an order for sale to enforce a charging order registered against a debtor's property, or following an application made by the home owner's trustee in bankruptcy.
Charging orders
A charging order is a court order which imposes a charge on the property (or land) of a debtor, that can then be registered against a debtor's property.
By this enforcement method, an unsecured debt (which could be a bank overdraft, credit card arrears, home improvement loan, hire purchase or car finance that initially was not secured by a charge on land or property) is converted into a secured debt. Once a creditor obtains the charging order the debt is converted from a non-priority debt into a priority debt.
This enforcement method can be used by any creditor, and is often used by utility companies, council tax authorities, and the Child Maintenance Service to recover unpaid debts.
The court cannot grant a charging order unless the creditor has first obtained a money judgement for an unpaid debt.[1]
Applying for charging order
A creditor who has obtained a money judgement can apply for a charging order on Court Form N379 following the procedure in Civil Procedure Rule (CPR) Part 73 and Practice Direction (PD) 73. The applications should be made to the court which issued the money judgment.
As well as providing details of the money judgment, the debtor and the property on which the charge is sought, the form must also include details of anyone else with an interest in the property, such as co-owners, tenants and anyone else with right of occupation, and any additional factors the creditor wants taken into account.
The fact that there has been no default in the payment of the instalments ordered in the money judgment does not prevent a charging order from being made in respect of that debt.[2] However, if there has been no default, the court must take that into account when considering whether to make a final charging order (see below).
Interim charging order
If the court is satisfied with the application, it will issue an interim charging order on Form N86. This will include date for a court hearing to consider whether or not a final charging order should be made. The court must allow at least 21 days before the date listed for the hearing.[3] The interim order must be served on the debtor and any other person with an interest in the property.
The court cannot make an interim charging order if the money judgment was suspended on terms and those terms have not been broken.[4] A debtor who wants to apply for a redetermination of the debt, or appeal against the making of an order on a suspended money judgement, should be referred to a specialist debt adviser to challenge the making of the order.
Final charging order
The court has the discretion whether or not to make a final charging order. However, the burden of proof is on the debtor to show good reasons for not making the order.
Objections
If the debtor (or anyone else who has been served with the interim charging order) wishes to object to the making of a final order, s/he must file written evidence and serve a copy on the creditor not less than 7 days before the hearing.[5] The debtor can also apply for the hearing to take place at another court nearer to her/his home or work place.
Circumstances the court must consider
At the hearing, the court will consider the creditor's application and any evidence filed opposing the making of an order. The court can make its final decision, or give directions for a hearing later on. The court must take into account all relevant circumstances, in particular:[6]
- the personal circumstances of the debtor, including the her/his household composition, income details and any change of circumstances, and
- whether any other creditor would be prejudiced by the making of the order.
Offers of payment
The debtor could make an offer of payment at the hearing. However the court is likely to make the charging order unless the offer of payment would clear the debt in a relatively short period. The court can suspend a charging order on terms. However, if the debtor fails to adhere to such payments this will give greater force to any future application that the creditor might later make to enforce the charging order by way of an order for sale (see below). Accordingly some caution has to be given when considering whether or not to put forward an offer.
Divorce/dissolution of civil partnership proceedings
If the debtor is involved in divorce/dissolution of civil partnership proceedings, the court should be told[7] and the case could then be transferred to the family court where any matrimonial claim for a property adjustment order and the application for a charging order will be heard together.
Other defences
The court should not grant a final charging order where:
- the size of the debt is small compared with the value of the property[8]
- the debtor has not broken the terms of the money judgment,[9] or
- there is evidence before the court that other creditors would be unfairly prejudiced by the making of the order.[10]
Effect of a final charging order
A final charging order itself does not compel the debtor to sell the property. The creditor must apply to court for an order for sale if s/he wants to force the sale of the property.
Court's powers
The court can dismiss the application for a final charging order, discharge the interim charging order and make an order for costs against the creditor. It can also adjourn the hearing, for example where the debtor is in a position to repay the debt in a short period, or where the debtor's spouse or civil partner asserts that s/he has a beneficial interest in the property.
If the application is successful, any fees paid by the creditor are usually recoverable from the debtor by being added to the judgment. A final charging order is drawn on Form N87 and a copy is sent to all parties to the proceedings.
Variation or discharge of a charging order
A charging order will remain in place until discharged, or enforced by way of an order for sale.
An application to vary or discharge a charging order can be made by 'any person interested in any property to which the order relates'[11] to the court which made the charging order.[12] The debtor can apply for discharge once s/he has paid the debt.
Registration of charging order
The creditor is responsible for registering any charging order, whether interim or final, at the Land Registry (if against registered land) or the Land Charges Registry (if against unregistered land). Information about the procedures and fees charged are set out in the Land Registry Practice Guide 19.
In most circumstances the charge will remain on the register until the debtor sells the property voluntarily. The creditor is repaid when the property is sold, but only after any prior mortgage or earlier registered charge is redeemed or extinguished.[13] However, it is open to any creditor to enforce a charging order by way of an order for sale.
Effect of a charging order on jointly owned property
A charging order made on a jointly owned property has the effect of severing any joint tenancy between owners so that the property is held as tenants in common. See the page Forms of ownership for more information on this.
In this situation, the joint owner's share does not pass automatically to her/his survivor on death according to the usual principle of survivorship (see the page Succession: Joint occupation), but remains part of the deceased tenant's estate. This means that a creditor may have a claim against that estate.
Enforcing a charging order - applying for an order for sale
An order for sale may not be issued where the debt is below a set threshold.[14]
The enforcement of a charging order by sale of the property is governed by CPR 73.10 and PD 73, unless the charging order has been granted against only one of two or more joint owners (which may include joint beneficial owners), in which case the creditor must apply under the Trusts of Land and Appointment of Trustees Act 1996.
The application
The creditor must apply for an order for sale and for an order for possession setting out:
- details of the charging order
- the outstanding debt
- details of any prior first and second charges on the property (eg mortgage charges)
- the estimated sale price
- its supporting witness statement.
The court's powers
The court can:
- adjourn the hearing
- grant the order for sale (usually granted as 'possession in 28 days')
- provide directions as to the conduct of the sale of the property
- grant the order for sale but suspend it on terms (eg the payment of the debt in instalments)
- dismiss the application and discharge the interim order.
An application for an order for sale is not statute barred (ie not limited to 12 years).[15]
Opposing an application for sale
In defending an application for sale, the debtor can put forward any alternative ways of discharging the debts. S/he can emphasise that the creditor is already well protected by the charging order and that the detriment which will result to innocent members of her/his family if the sale is allowed.
All defences available against the making of a charging order should also apply (see above under 'Final charging order').
Application for an order for sale by trustee in bankruptcy
A trustee in bankruptcy has a duty to distribute the assets of a person who is bankrupt in accordance with the Insolvency Act 1986. Where the assets are held in the sole name of the bankrupt, distribution may be made without considering the needs of anyone else. Where a home is held jointly between a bankrupt and another person, the trustee in bankruptcy is an 'interested person' who can apply for an order for sale under the Trusts of Land and Appointment of Trustees Act 1996 (TLATA).[16]
See Bankruptcy and possession for the definition of a trustee in bankruptcy.
An application for an order for sale is made to the bankruptcy court.
Circumstances the court must consider
The court must consider a range of interests when deciding on an application for an order for sale, specifically:[17]
- the interests of the bankrupt's creditors
- (where the application concerns the home (or former home) of the bankrupt or her/his spouse/civil partner or former spouse/civil partner), the conduct of the current or former spouse/civil partner in contributing to the bankruptcy, their needs and financial resources, and the needs of any children
- all the circumstances of the case other than the needs of the bankrupt.
An order for sale must not be made where the net value of the bankrupt's interest in the property is below a set threshold.[18]
Presumption in favour of order for sale
There is a presumption in favour of making an order for sale for the benefit of the bankrupt's creditors 12 months after the bankrupt's estate has vested in the trustee in bankruptcy.[19]
Exceptional circumstances
Where there are exceptional circumstances, the court can exercise its discretion to postpone a sale for longer than 12 months. However, the order for sale cannot be postponed indefinitely.
The fact that an innocent third party will become homeless if a sale is ordered is not an 'exceptional circumstance' and will not displace the presumption in favour of making an order for sale.[20] The courts have held that the interests of creditors will prevail over those of spouses/civil partners and children, and that for circumstances to be 'exceptional', they must be more than those consequences of debt that would normally arise. [21] Housing advisers should emphasise factors such as the effect on children who are approaching important examinations, or where someone in the household has severe ill health.
The High Court was not prepared to agree postponing a sale until the death of a seriously co-owner spouse of a bankrupt home owner in the absence of compelling evidence that he had no realistic housing options were he to become homeless following an order for sale of his home. The Court made an order for sale in a further 12 months, but gave express permission for the spouse to apply for a further postponement. The Court stated that in order to have any hope of succeeding in such an application he would need 'cogent evidence' of his ill health and its impact on his housing options.[22]
Securing a charging order instead of applying for an order for sale
A housing adviser seeking to help a bankrupt home owner to remain in their home could consider finding out if the trustee in bankruptcy would consider applying under the Insolvency Act 1986 for a charging order (as above) instead of applying for an order for sale.
Application for an order for sale by a lender
Where a lender is unable to obtain possession and to sell a defaulting borrower's property as mortgagee in possession, perhaps because a third party has a binding overriding interest in the property, the lender may apply to court for an order for sale under the Trusts of Land and Appointment of Trustees Act 1996.[23] In deciding whether or not to order a sale, the court must have regard to various matters, including the welfare of any child who occupies or may reasonably be expected to occupy the property as a home, and the interests of any secured creditor or beneficiary.[24] The court may postpone a sale, for example, where an occupier is unwell, but is unlikely to refuse an application for sale on this ground alone.
[1] s.1 Charging Orders Act 1979.
[2] s.1(6)-(8) Charging Orders Act 1979, as amended by s.93(2) Tribunals, Courts and Enforcement Act 2007; s.3 Tribunals, Courts and Enforcement Act 2007 (Commencement No. 8) Order 2012 SI 2012/1312.
[3] CPR 73.5(1).
[4] Mercantile Credit Co Ltd v Ellis (1987) The Times 2 April, CA; s.86(1) County Courts Act 1984.
[5] CPR 73.8(1).
[6] s.1(5) Charging Orders Act 1979.
[7] Harman v Glencross (1986) Fam 81,1 All ER 545, CA.
[8] Robinson v Bailey [1942] 1 All ER 498.
[9] Mercantile Credit Co Ltd v Ellis (1987) The Times 2 April, CA.
[10] Herman v Glencross [1986] Fam 81,1 All ER 545, CA.
[11] s.3(5) Charging Orders Act 1979.
[12] CPR 73.9(1).
[13] s.29 Land Registration Act 2002.
[14] r.3 The Charging Orders (Orders for Sale: Financial Thresholds) Regulations 2013 SI 2013/491.
[15] Yorkshire Bank Finance v Mulhall [2008] EWCA Civ 55.
[16] s.14 Trustees of Land and Appointment of Trustees Act 1996.
[17] s.335A Involvency Act 1986 as inserted by s.25(1) and Sch 3 para 23 Trustees of Land and Appointment of Trustees Act 1996.
[18] art 2 and Sch. Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004 SI 2004/547.
[19] s.335A(3) Insolvency Act 1986 inserted by Sch 3 para 23 Trusts of Land and Appointment of Trustees Act 1996.
[20] Re Lowrie [1981] 3 All ER 353.
[21] Re Citro [1991] Ch 142; [1990] 3 WLR 880, CA.
[22] Pickard & Anor v Constable [2017] EWHC 2475 (Ch).
[23] Bank of Baroda v Dhillon [1998] 1 FLR 524, CA.
[24] s.15(1) Trusts of Land and Appointment of Trustees Act 1996.
