Charging Orders – key points
What is a charging order?
Charging orders are a form of enforcement of judgment against a property owned by a judgment debtor. It follows that a charging order can only be applied for if the debtor is the legal owner of a property and there is a court judgment.
Enforcing a court judgment is often not straightforward. Many debtors do not pay after judgment is entered. They may be unable to pay or unwilling. It is then up the judgment creditor to decide which option(s) to pursue to enforce.
A charging order can be a powerful tool to enforce but there are risks associated and many debtors still do not pay after a charge is registered against their property. The creditor may have to wait for years to actually get paid for reasons detailed below.
It is always important to carefully consider enforcement options if you have a civil court judgment for money. Tactics, experience and process are important.
For example, it is always important to consider carefully if there is likely to be any equity in the property and whether there is a likely scenario in the future where the debtor will want or need to remove the charge by paying off the debt. It is also essential to investigate other charges already registered against the property in question that rank higher against the property and will get paid out first on any sale.
Our litigation lawyers can advise you on the best options in your situation. We also advise debtors who need legal advice on charging orders over property and subsequent applications for an order for sale.
Charging Order application process
There is a 2 stage process to actually obtain a charging order and possibly a 3rd stage if application is made for an order for sale.
Where successful on the initial application an interim charging order is made. A subsequent application is then required for a final charging order. Once the final charging order is made, application will then need to be made to register the charge against the property at the Land Registry.
Jointly owned property
Where a judgment debtor jointly owns a property and 1 of the joint owners only has the judgment debt against them, the court can still make a charging order over the property but only against the share owned by the party with the judgment debt against them. In this situation, obtaining an order for sale is likely to be very difficult.
When and how can a charging order be enforced?
The ultimate way to enforce a charging order, if the debtor does not pay after it has been registered, is to apply for an order for sale. This is not a straightforward application in most cases because the court will take into account many factors, and commonly the charge by way of charging order will rank behind other charges registered before it, typically a legal charge to protect a mortgage lender registered when the property was purchased.
Factors which are likely to result in difficulty getting an order for sale include :
- Where the property is jointly owned
- Where a mortgage lender objects
- Where the property is occupied by the debtors family. Even if the debtor is the sole legal owner, a court will generally be reluctant to make an order for sale. This is especially the case if there are children living in the property. The court will often determine that the creditors interest is protected long term and that at some stage the debtor will need to mortgage or sell the property at which point, the creditor will get paid.
When do you need to get a charging order removed?
The 2 main triggers for a debtor needing to get a charging order removed are on sale or remortgage of the property. In these situations, a buyer or new lender will require clear title meaning that all charges over the property will need to removed by paying them off. This can happen on completion of sale or remortgage.
An unsatisfied judgment, separate from the charge over a property, will commonly create problems for a debtor at some point in any event, such as applying for credit. This may also trigger payment of the underlying debt which will then result in the charge being removed. However, note that this will not happen automatically. Application to the Land Registry will be needed, which involves some cost, hassle and delay.
Solicitors for property charging orders
For experienced and expert advice on charging orders, whether as creditor or debtor, please do get in contact with us. We also advise on the general position on court judgments and underlying legal dispute resolution.