mikes1531
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Post by mikes1531 on Mar 7, 2017 18:48:37 GMT
We will be posting a new loan tomorrow, 8th March, 11am This is a loan secured by a third charge (equitable) on a property in Farnham Royal. : Can you please explain to a layman what practical difference it makes to FS lenders whether or not the third charge is equitable? I've done a bit of Googling, and read the entries in the legal dictionaries, etc., but I can't really see what difference it would make. Help! 
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Post by fundingsecure on Mar 7, 2017 23:10:35 GMT
Mikes
We can provide a relatively simple answer, but there are many other factors - including the specific wording of the contract - that can affect the overall effect of any charge. It is not possible to cover all aspects of the differences, and, as always, we need to add a disclaimer that this is not a legal opinion and does not represent any specific advice, but hopefully this will help to clarify the position a little.
Simply put, the main difference is that, in the event of a default, a legal charge (usually) gives the lender the power to sell the property, an equitable charge does not give the lender an automatic right to sell the property, it would first require a court judgement. If the correct procedures are followed this judgement would usually be straightforward. To further confuse you, in certain circumstance a judgement may also be needed even with a legal charge.
In both cases, the charge, once registered at the land registry, effectively blocks any sale or disposition of the asset without the charge being satisfied.
If you would like to have further information we would have to point you to a lawyer to cover the complexities/exclusions, etc.
HTH
FundingSecure
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Liz
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Post by Liz on Mar 7, 2017 23:27:49 GMT
Edit: Now read three times, I think i understand the differences. Just musing over consequences of this lesser(my interpretation) charge.
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Liz
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Post by Liz on Mar 7, 2017 23:42:27 GMT
fundingsecureI have a question on 2nd charges(like the farm conversion tranche live tomorrow) If a property was sold for £700k and 1st charge held £500K, 2nd charge £200k. If a property was sold for £700k(after fees) and 1st charge held £500K(plus owed interest), 2nd charge £200k. Would 1st charge get all capital and interest back, before 2nd charge got a penny? And would this be interest up until it defaults, or all interest up until the property sold.
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mikes1531
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Post by mikes1531 on Mar 8, 2017 0:35:32 GMT
If a property was sold for £700k(after fees) and 1st charge held £500K(plus owed interest), 2nd charge £200k. Would 1st charge get all capital and interest back, before 2nd charge got a penny? And would this be interest up until it defaults, or all interest up until the property sold. AIUI, the first charge would have to be satisfied completely -- including all accrued interest, late fees, etc., etc. -- before anything would be paid to the second charge holders. And that should include interest on the first charge all the way up to the time of the sale. I'm not qualified to talk about such matters, though, so this is just my understanding. Clearly it would be better if we got an answer from fundingsecure. It's the late fees, etc., etc., that can make a huge difference on the proceeds flowing to the lower-ranking charge(s), and it isn't unheard of for default interest rates and late fees to be quite high. And the impact is magnified if the liquidation process takes quite a while to be resolved, which easily can happen if the first charge holder leading the recovery process has minimal incentive to hurry because they're rubbing their hands gleefully watching their default charges mount up. This is why I really prefer loans that are first charges. It might not be so bad in those cases where the prior charges are held by FS.
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Post by fundingsecure on Mar 9, 2017 8:23:13 GMT
Mikes,
again with the usual disclaimers...
You are essentially correct - but it does depend upon the actual wording of the contract and whether (if it exists) there are further restrictions in any deed of priority. (DOP is a separate agreement between the two charge holders, sometimes with restrictions/limitations/covenants etc)
In most cases, however, the first charge holder receives the initial "cut" to any funds received to cover any and all monies owed. (As always after any receiver's charges)
HTH
FS
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