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Debt Against a Property

15 February 2019 - Posted by TalkAboutDebt

Normally debt goes against the person in debt, however, if large amounts of debt is built up then your property may be at risk. This means if you can not pay the debt, your home can be repossessed and sold to repay the debt. You might also want to read our article on how to deal with council tax arrears.

 

Can I lose my property?

 

As part of the bankruptcy process, there is always a requirement that as much money as possible is returned to the creditors of the bankruptcy and this can be by seeking money from assets. If the property is jointly owned and there is no equity at all in the property then there is nothing to be gained from selling it. In case you can keep your property. However, if there is a lot of equity in the property then the Official Receiver (OR) will want your share of the value of the house. This may mean that the only way to get at this share is by selling it, which could mean losing your property. To avoid losing your property you could sell your share of the property to the other owner of the property.

 

When your house is sold the debts associated with the house will be paid first, mortgages and debts secured on the property. After this, the remaining funds are distributed to the remaining interest in the property. The person whose debt was secured on the property is liable for the debt secured on the property, it is secured on their share of the equity in the property. We suggest speaking to a solicitor dealing with the sale of the house about how the funds should be distributed to each of you after the secured debts are paid.

 

What happens if I can’t repay a secured loan?

 

There are two types of secured loans. The first is those regulated by the Financial Services Authority (FSA). With this type of loan, you would need to reach an agreement to meet the contractual repayment plus an amount to clear any areas within a reasonable period of time, otherwise, it is likely the lender would try and repossess the property.

 

The second type of loan is one regulated by the Consumer Credit Act 1974 (CCA74), with this type of loan you can ask the courts to make a Time Order under section 129 CCA74 varying the terms of the mortgage and adjusting the contractual repayment. You would need the assistance of a solicitor or experienced money adviser to do this.

 

The only way to remove this secured debt from the property is to repay the debt by pre-arranged monthly repayments. Alternatively, you could sell the property and clear the debt with any equity released from the sale, assuming that enough equity was released to allow you to do so. Should the property be in negative equity you would still be liable to repay any shortfall following the sale of the property.

 

A lender who has granted you a loan secured against your property will have the same rights to repossess the property as your mortgage company would have if you aren’t able to keep up with your mortgage payments.

 

I have a secured loan with Welcome Finance, do they have a set time to recover the money back?

 

If you have a secured loan from Welcome Finance, it will be secured against your property. The loan will be repaid when the property is sold, so the time limit is not necessarily the issue. There may be other things that you need to consider regarding this debt and you may need to look at the documents you hold to see what is possible. If interest is still adding to the debt this will continue to increase the amount you owe. If you have no intention of selling the property then repayment to the debt will be required at some stage. If you are not selling the house or paying back the debt there may be a risk that the lender will ask the court for an order to sell the property, if this is the only way of getting their money back.

 

Unsecured loan against property, do I have to pay off this loan?

 

If the loan is unsecured it will not be attached to your property in any way so will not automatically be paid in your house sale. If you have proceeds from the sale it is up to you how you use them. You may wish to clear the debt, and you might be able to get a reduced settlement on the balance, but all the lender expects is that you maintain your contractual payments. If you are unsure how best to use any lump sum you receive I would encourage you to seek independent financial advice.

 

Who is liable for debt on a property recently bought?

 

You should not be liable for any debts (i.e. service charges) accrued before you purchased the property, however, you should read the terms of your contract with the property managers careful to confirm that this is true.

 

You may be better seeking legal advice about the terms of your property purchase and service charges to establish what you owe and whether there is any risk to your property if it is owed and unpaid.

 

Can I sell part of my house?

 

Normally when a property is sold, it is sold in full. However, that’s not to say your interest could not be sold to someone else, but you will require the permission of the other owner. Particularly if they are still living in the property. You will also need to speak to a solicitor, as the land register needs to be changed.

 

The other owner may be unwilling to do this, as an obvious right that comes with ownership of a property, is a right to live in it. Usually, what happens when someone stops living in a home and wishes to sell their 50% share, is they agree with the other owner to sell the property together, or the other owner agrees to buy out the other owner. If you want to sell your interest and the other owner doesn’t, you will need to take legal advice as an action may be required in court to force the sale of the property and divide the proceeds.

 

In addition to the above, releasing money from your home can be done by taking a secured loan, mortgage, remortgage, or selling part, or all, of the house. You may need to speak to an independent financial adviser for details on how to sell a share of your house and releasing equity from your home. You could initially have a look at the guidance provided by the Money Advice Service. It may be that there are other options for clearing the debts without having to sell a part of your home and you could contact a free debt adviser before going ahead with any changes to the ownership of your home.

 

Will debt affect my partner’s property?

 

Your personal debt should not affect your partner. However, there may be some situations where your debt could affect your partner:

  • If the property is jointly owned.
  • If you own a limited business (please seek specialist business advice from ‘Business Debtline’.)
  • In bankruptcy, your partner’s property may be affected in you have beneficial interest in it.

In other terms, if you have liability for a debt and it is not paid then the lender can pursue you, or other people who have liability for the debt. For example, if you fail to pay your mortgage, the ultimate sanction a mortgage lender can take is to sell your property to recover their debt. This could mean that the entire mortgage is paid off and a profit made, or it could mean that it does not clear the mortgage and leaves a debt.

 

This remaining debt is called shortfall debt (read more about shortfall debt). If there is a shortfall debt after a house has been sold they will ask the people with liability for the debt to pay it. They will not ask your partner to pay for your debts (unless you have a joint mortgage with them) but there may be an impact to the household which could, indirectly, have some future impact on your partner.

 

Will my partner’s poor credit rating affect me?

 

Credit ratings are linked to the individual, not the property so unless you have a financial association with them (for example, joint bills or joint accounts) your credit rating will not be affected by them living in your property.

 

However, if your partner lives with you for some time and contributes financially to the household they may build up a beneficial interest in your property. This essentially means that although their name is not on the deeds they may be entitled to a percentage of the equity due to contributing financially to the household over an extended period of time.

 

 

Will I be taken to court for owing rent?

 

It will depend on the terms and conditions of your rental agreement. For example, if you rent a garage to store your car, the garage owner can hold the property stored within the garage. It is unlikely however that they will be able to sell the car to recover any payment owed as they are not the legal owner.

 

If you owe rent on a property, the landlord would need to take some form of legal action in order to recover any debt. If the case has not been to court you might get calls from debt collectors. However, these debt collectors do not have the legal powers to seize (“attach”) goods. Even if the case has been to court, it’s rare for sheriff officers (who can be authorised to enter a property) to seize goods. They would only be permitted to do so if said goods are yours, not anybody else’s. Whatever stage enforcement proceedings have reached, you may wish to seek some free, local debt advice.

 

Can I transfer ownership of a jointly owned property to avoid debt?

 

This will depend upon a number of things. Firstly, it is not always easy to have a property transferred into a sole owner’s name. If there is a mortgage company involved they are likely to be reluctant to do this. You may be able to buy-out the other party’s share of the property and should seek independent financial advice on this.

 

Secondly, if the property is transferred into your name, any claim by the party’s creditors upon the house could depend on whether that person is deemed to still have a ‘beneficial interest’ in the property (e.g. if he has contributed towards the deposit or mortgage payments).

 

Will my property be blacklisted if I can’t pay my debt?

 

Properties are not blacklisted, a property cannot take out a credit agreement and there isn’t really a blacklist of property that is deemed to be a bad risk or to be avoided.

 

People sign contracts for services and facilities and they take out credit agreements, these all have contractual obligations, terms and conditions. If someone breaches the conditions or fails to pay, this information may be recorded with one of the credit reference agencies and if a debt remains unpaid then further action may be taken against a person to force them to pay.

 

If the debt belongs to someone else (not living at your property), then you cannot be asked to pay for someone else’s debts. If you are not linked financially to someone else then there should not be any information on your file that relates to anyone else. This will also cause issues for collection agencies or bailiffs who are attempting to recover the owed debt. For more information please read our article on dealing with bailiffs.

 

 

What happens to debt against an overseas property?

 

Each country will have its own property and finance laws. For example, if your mortgage product is with a Spanish Bank for a Property in Spain, this means it is likely to be the subject of Spanish Property and Finance Laws. So it may be that you need to ask directly of the bank or seek someone who is qualified in Spanish mortgages, to see what happens in, or after, a Spanish Property Repossession.

If you live in Scotland, creditors may use an inhibition order which affects what you can do with your property. It is valid for 5 years from the date it is registered in the Register of Inhibitions and Adjudications. It isn’t valid after the outstanding amount is paid in full, the 5 year period expires or on the death of the debtor. However, a pursuer can seek to renew the inhibition.

The expenses of the inhibition, including those expenses relating to the discharge of the inhibition also require to be paid by the defender (ie the client). This does not mean the debt has gone as the remainder still needs to be paid as the debt is not statute barred as it is being paid! So they will chase for the balance of the debt. The creditor will be made aware of the sale if the inhibition is still on the property and will chase. However, they cannot automatically take it from the sale of the property. By speaking directly to a trained money advisor they could look at your full financial position and may be able to help further.

 

How long is a possession order valid for?

 

If you contact the Trustee they will be able to tell you exactly what intent there is, and when, with regards to the possession order and sale of the property. There is a lot of useful information on the Insolvency Service website that deals with property.

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