A charging order is a way of ensuring the creditor secures interest in the property of the debtor. What this means is when the debtor decides to sell the property, the creditor is going to receive payment of the debt owed to them when it sells. This is going to include costs and interest. Below is the process of obtaining a charging order:
Send the N379 Application for charging order to the court. Make sure it includes the title and liability order
Serve interim charging order on the debtor or creditors if it applies
Register the interim charging order on the title
Draft certificate of service
Apply for a final charging order in the courts
Serve final charging order to debtors and creditors
Register the final charging order on the title
Draft certificate or service
This is a simple process, but there are some things that can easily make it a little more complicated.
Once you have a charging order from the court, the Interim and Final Charging Order can be registered on the property. This is what is going to secure the debt. If the debtor has a lot of charges on their property already (you can see entries listed on the Land Registry Title), it may mean that there isn’t enough equity in their property and the creditor can miss out on receiving their money. The money is going to be distributed following the order of priority in the entries on the title. This is why it is a good idea to first start by determining the value of the property and then calculating the minimum equity before you proceed. This is going to help you avoid going through the process and ending up with nothing after all that effort.
The court is going to determine the timescales for obtaining the charging order for a given property. The COVID-19 pandemic has resulted in a large backlog of cases in the courts and it has slowed down the time it takes for someone to get the Order. This can make this process quite lengthy. Because of this, you need to make sure you have completed the application correctly to make sure that there aren’t any delays when receiving the Interim and Final Charging Order. There are other ways delays can come up. One of them is a debtor having the right to contest the charging order. When they contest the charging order, a hearing date is going to be set, which is going to make the process costly.
There are cases of debtors who sell before the creditor secures an order. This can make things challenging because the title of the property may be transferred to a new owner. This makes it important to make sure you have completed the process in a timely manner to avoid the risk of not being able to register the charging order. If the debtor has sold their property, the creditor is going to have to look for other ways of recovering their debt, for example, bankruptcy proceedings on the debtor.
An order for sale can be made if the debtor is owing a large sum and interest has already been registered on their property. An Order for Sale is where they are forced to sell the property and any secured interest on that property is going to be paid from the money after selling. If the order for sale is made, the claimant is the one to contract creditors who are on the title to make payments. Once the creditors on the title have been paid, the debtor is going to be given the remaining surplus funds. There is a minimum debt level that is needed before pursuing an order for sale.