Disclaimed property during bankruptcy

[Woodstain Wally]

During my bankruptcy a few years ago (discharged) the TIB wrote to me saying they were ‘disclaiming’ interest in a second property I own (presumably bc it was close to negative equity). I wrongly thought I could just keep it and eventually sell. I tried recently and it appears the lease has effectively been extinguished and I no longer own it. I’ve sought advice and am told that a vesting order could have been applied for within three months of the Disclaimer, but not now as too much time has passed. A number of questions arise about what to do next:

1. Mortgage. What to do about the £95k charge on the property? Do the lender know? What if I stop paying? If their charge is no longer secured against my non-existent lease, what happens? I haven’t told the lender as that may start a chain reaction outside my control.
2. I continued to rent it out and pay the mortgage, ground rent and service charges for a couple of years. That’s a lot of money. If my ownership was extinguished, I’d like it back.
3. It’s costing me ~£800pcm with interest rates as they are. Should I have just walked away?
4. I’ve been invited by solicitor to get the opinion of counsel which I obviously can’t afford.

This is a bit of a desperate situation so any thoughts would be most welcome! Thanks in advance.
WW

 

[eteb3]

I'd say you need to reword your question: it's not clear what the situation was before your bankruptcy and how it changed after. What is the property, what was the nature of your interest in it, when was the disclaimer, what's been happening to the property since?

I'll also say that if your solicitor is suggesting getting counsel's opinion, it's unlikely a forum can answer...! But people on here are game for trying, usually.

 

[eteb3]

I continued to rent it out and pay the mortgage

Was this after your bankruptcy?

 

[Lisa Thomas]

I have to tell you to take formal legal advice from a solicitor that specialises in insolvency.

My informal opinion, for information only and not to be taken as advice, is that the debt to the bank would possibly have been written off via the bankruptcy however as you continued to let it out, earn an income from it (have you declared that on your tax returns?), and pay the mortgage, you are highly likely to now be responsible for the mortgage, despite the fact you went bankrupt because the contract with the bank continued post bankruptcy. It probably then became a post bankruptcy unsecured liability and was possibly excluded form your bankruptcy debts.

You may have to look at further insolvency options to deal with the potential debt, I'm afraid.

 

[Solvelaw]

The legal effect is that there is no lease as the leased ended on disclaimer. You may want to check at Land Registry what the position is, the continuing registration of it may be misleading. For you to get a new lease, I would expect you would need to be granted one usually at a premium. There is a very outside chance that the freeholder may take sympathy and grant one if you are able to cover their legal costs in doing so and your lender may need a deed of substituted security if there is still a valid enforceable mortgage. It is a bit messy and lot stems on investigation v the real world value of the theoretical lease you would have. In essence as long you are discharged, it may be matter of agreement with all involved.

 

[Woodstain Wally]

Was this after your bankruptcy?

Yes. I didn’t know what a disclaimer did, couldn’t afford expensive legal advice!

 

[Woodstain Wally]

I have to tell you to take formal legal advice from a solicitor that specialises in insolvency.

My informal opinion, for information only and not to be taken as advice, is that the debt to the bank would possibly have been written off via the bankruptcy however as you continued to let it out, earn an income from it (have you declared that on your tax returns?), and pay the mortgage, you are highly likely to now be responsible for the mortgage, despite the fact you went bankrupt because the contract with the bank continued post bankruptcy. It probably then became a post bankruptcy unsecured liability and was possibly excluded form your bankruptcy debts.

You may have to look at further insolvency options to deal with the potential debt, I'm afraid.

Are you suggesting the correct course of action would have been to stop paying the mortgage etc on receipt of the disclaimer notice?! I’m now obsessive about making sure things are paid on time. The thing nobody seems to know is, TiB would have to have given notice to interested parties (eg freeholder and mortgage lender), to allow them an opportunity to apply for a vesting order (within short time period) so they could sell it. If the lender was served that notice, took no action, so their right to take up the property passed, how am I left with a 6 figure debt! Post-bankruptcy! After the 14 days had passed, surely my debt under the mortgage was effectively unsecured and so should have fallen within the bankruptcy? Yet here we are! And yes, the rental income is declared in my self assessment and I pay my tax. A firm of solicitors has quoted me £2,000 to advise me on my position! Advise only!

 

[Woodstain Wally]

The legal effect is that there is no lease as the leased ended on disclaimer. You may want to check at Land Registry what the position is, the continuing registration of it may be misleading. For you to get a new lease, I would expect you would need to be granted one usually at a premium. There is a very outside chance that the freeholder may take sympathy and grant one if you are able to cover their legal costs in doing so and your lender may need a deed of substituted security if there is still a valid enforceable mortgage. It is a bit messy and lot stems on investigation v the real world value of the theoretical lease you would have. In essence as long you are discharged, it may be matter of agreement with all involved.

Thank you. I just need a way out. Either that enables me to pay off the mortgage or something else.

 

[Gyumri]

A firm of solicitors has quoted me £2,000 to advise me on my position! Advise only!

Have a look here as it may clarify your position:-

https://www.insolvencydirect.bis.go...icalmanual/ch25-36/chapter34/part5/part_5.htm

https://www.irwinmitchell.com/news-...uring-and-insolvency/jan-19-disclaimed-assets

 

[eteb3]

You could pay £3.50 and get a copy of the title register from the Land Registry. That would give the legal position on the face of things.

At least you don't need to fret that you should have applied for a vesting order: paragraph 34.93 of the insolvency rules linked by Gyumri above makes clear that you would have had a right to do so only if you were occupying the property at the time of bankruptcy - and you weren't, right, bc it was out on lease? If you were, note that the Court has discretion to extend the three-month deadline (34.87).

TiB would have to have given notice to interested parties (eg freeholder and mortgage lender), to allow them an opportunity to apply for a vesting order

Would the mortgagee (the bank) need a vesting order? Afaik, the freehold would go to the Crown as ownerless property*, but the security interest continues.

That is to say: because a mortgage operates as a transfer of ownership to the mortgagee**, the bank's interest in the property vested in them when you took out the mortgage.

Afaict, the disclaimer operated to end your equity of redemption in the property - ie, your right to have it back by repaying the secured sum was extinguished. The only interest remaining in the property (besides the Crown's) is then the bank's. They can sell the property to meet the liability secured, and any surplus would, per Gyumri's Irwin Mitchell link, belong to the Crown.

you are highly likely to now be responsible for the mortgage, despite the fact you went bankrupt because the contract with the bank continued post bankruptcy

What makes you suggest this, Lisa? Does a mortgage contract survive the bankruptcy in a normal case, too, or does this only arise from OP's implied re-acceptance of the contract by continuing to pay the mortgage? (Appreciate you can't give advice: some rough info would be interesting, tho - thanks!)

* Strictly the Crown holds it absolutely, and the freehold interest is extinguished.
** Albeit subject to the equity of redemption: i.e., the bank owns the property but the borrower has the right of repaying the secured sum and taking the property back into their own hands absolutely.

 

[eteb3]

PS @Woodstain Wally, £2000 isn't that suprising given the complexity: you'd just want to be really confident they know what they're talking about (and have £2k to throw at them...)

 

[eteb3]

TiB would have to have given notice to interested parties (eg freeholder

PPS Are you saying that as freeholder you never had notice of the disclaimer? In which case on the face of it the three months has not started to run (though you seem fully aware of the fact?) Or were you a leaseholder subletting to your tenants?

 

[Gyumri]

£2000 isn't that suprising given the complexity:

That would just be for looking at the papers. Counsel would then need to be instructed so your "starter for ten" would probably set you back around a minimum of five grand plus vat.

The legal profession receives the highest hourly rates in the country courtesy of the Lord Chancellor which are way above the rank and file.

 

[eteb3]

Sorry, @Woodstain Wally , I see you've said yours was a leasehold interest. In that case it has (legally) utterly died the death on the disclaimer. See further here (ignore forfeiture and Ctrl-F for disclaimer).

Leasehold issues for lenders: Forfeiture and disclaimer of leases – Mortgage Finance Gazette

The growth in leasehold ownership within the UK retail mortgage market is resulting in lease-related issues increasingly affecting lender clients. Karl Anders - partner, real estate litigation, Louise Power – partner, banking litigation, and Sandip Singh – senior associate, banking litigation...

www.mortgagefinancegazette.com

Despite your legal lease dying on disclaimer, it occurs to me that you may have an equitable lease in the property. That could arise if your superior landlord, having notice of TiB's disclaimer, has continued to treat you as their tenant - eg, have they accepted service charges or ground rent from you?

It would seem any claim to an equitable lease would be strengthened if your superior landlord knows you've been subletting: that would suggest they've disclaimed their legal rights as your tenant's direct legal landlord (which in law they now are). Eg, even pre-bankruptcy (but especially after) did you seek, and did they give, permission for you to sublet, so that they can be said to know of the fact?

The equitable lease would not have vested in the TiB from declaration of bankruptcy, because it could only arise after the legal lease was extinguished by disclaimer. Once it had arisen (and exactly when would be a fuzzy question), then assuming it will have arisen while you were undischarged, it would belong to the TiB and you would have a duty to tell TiB about it: 10.125.

If you do have an equitable lease, and if it's arisen after your discharge, you may conceivably be able to get a legal title somehow. Probably lots more work for m'learned friends.

 

[eteb3]

Actually on my last point, I don't think it would matter when your equitable lease arose: even if the equitable lease arose while you were bankrupt, any legal lease you may be granted would (I think) be a completely different asset, acquired after discharge, and so none of TiB's concern.

 

[fisicx]

The legal profession receives the highest hourly rates in the country courtesy of the Lord Chancellor which are way above the rank and file.

Most legal practitioners are well within the means of many. Agreed there are some who are expensive but just like most professions there are a range of rates.

Apologies to @Woodstain Wally for the off topic post.

 

[Gyumri]

These are the range of rates:- compare to nurses for example who earn £10 per hour helping to save lives.

Solicitors' guideline hourly rates

Guideline figures for carrying out a summary assessment of court costs, listed by pay band and grade for different parts of the country.

www.gov.uk

And those are rates for hearings not exceeding I day in court.

Even a beginners rate of £250 per hour is hardly cheap - so net result is to avoid the court system if you can.

 

[fisicx]

These are the range of rates:- compare to nurses for example who earn £10 per hour helping to save lives.

Solicitors' guideline hourly rates

Guideline figures for carrying out a summary assessment of court costs, listed by pay band and grade for different parts of the country.

www.gov.uk

And those are rates for hearings not exceeding I day in court.

Even a beginners rate of £250 per hour is hardly cheap - so net result is to avoid the court system if you can.

Those are the rates for a very specific function. My solicitor charges £80/hour for consultations.

 

[Gyumri]

Does a mortgage contract survive the bankruptcy in a normal case, too, or does this only arise from OP's implied re-acceptance of the contract by continuing to pay the mortgage?

From the link I gave above:-

"Obviously, the bankrupt would have no liability under the property by virtue of the making of the bankruptcy order.

As regards whether the bankrupt can claim an entitlement to the property, it has been viewed that any entitlement that the bankrupt may have had would be ended by the operation of the disclaimer, as the effect of the disclaimer is to bring to an end the interest of the bankrupt and his/her estate in the property."

I think without knowing for sure that the OP might be able to reinstate the mortgage with the lender and recover the property during his bankruptcy or following his discharge but this will need to be checked.

 

[Gyumri]

Those are the rates for a very specific function. My solicitor charges £80/hour for consultations.

That's very considerate. Some solicitors don't charge anything for an initial consultation. But you will be charged the going rate once you sign on the dotted line.

 

[Woodstain Wally]

Thanks all. So where I think this leaves me is:
1. Surrender the keys to lender as it’s empty and stop paying the mortgage, telling them why.
2. Stop paying ground rent and service charges and inform management company why.
3. Pray that the mortgagee power of sale survives, even though they have not taken over payment of all my lease liabilities
4. Accept that any profit over and above the mortgage redemption etc goes to the crown
5. Attempt (gently) to recover all payments made by me since the disclaimer, since none of these were payable and could be regarded as preferring creditors
6. Generally pray that mortgagee can use their power of sale and redeem the mortgage, otherwise their last card is to pursue me for it as an unsecured debt which arose after discharge raising the prospect of a second bankruptcy.

Deep joy!

 

[Gyumri]

6. Generally pray that mortgagee can use their power of sale and redeem the mortgage, otherwise their last card is to pursue me for it as an unsecured debt which arose after discharge raising the prospect of a second bankruptcy.

I can't see how they can do that. If the property was your home perhaps you qualify to apply to the court for a vesting order which would be vested in you as the legal owner but subject to the mortgagees charge.

 

[Lisa Thomas]

What makes you suggest this, Lisa? Does a mortgage contract survive the bankruptcy in a normal case, too, or does this only arise from OP's implied re-acceptance of the contract by continuing to pay the mortgage? (Appreciate you can't give advice: some rough info would be interesting, tho - thanks!)

* Strictly the Crown holds it absolutely, and the freehold interest is extinguished.
** Albeit subject to the equity of redemption: i.e., the bank owns the property but the borrower has the right of repaying the secured sum and taking the property back into their own hands absolutely.

 

[Lisa Thomas]

In the past specialist insolvency solicitors have given me that advice on the basis you have stated - reacceptance of the contract due to the continued payments.

 

[Solvelaw]

Have you got the official copy of the leasehold title as the register is dynamic, check what if anything exists or shows. Get this from the Land Registry and check the proprietorship register B. I have a feeling that lenders may have intervened without you knowing fully about it as leasehold security is more precarious than freehold, it would highly unusual (but not impossible) for the bank to have lost is security entirely.

 

[eteb3]

Get this from the Land Registry and check the proprietorship register B.

100% this. All the rest (including or especially from me) is just musings.

 

[eteb3]

5. Attempt (gently) to recover all payments made by me since the disclaimer, since none of these were payable and could be regarded as preferring creditors

Your payments may just possibly give you an equitable claim in the disclaimed lease, such that you would have a proportion of the sale proceeds. Reason: it seems to me you may be in the position of a third party now that your legal interest has been extinguished: third parties paying mortgages with the lender's knowledge can sometimes (sorry, details beyond me) acquire rights in the property. Some reference here, though not an exact fit for your situation.

Legal News & Insights | Irwin Mitchell

www.irwinmitchell.com

 

[Solvelaw]

100% this. All the rest (including or especially from me) is just musings.

The rest is somewhat speculation because you need to start from what I stated earlier today. My feeling tells me that lender may have intervened and you may not have been aware.

 

[Woodstain Wally]

The rest is somewhat speculation because you need to start from what I stated earlier today. My feeling tells me that lender may have intervened and you may not have been aware.

The first thing I did was to get copies of the leasehold title. The lender has not intervened. I’m still stated as proprietor, but there is a bankruptcy restriction, plus the notice of the TIB disclaimer. There is also obviously the mortgage in the charges register. I have a free consultation tomorrow with a local specialist. Will post on here the advice I get. Thanks all for the interest.

WW

 

[Woodstain Wally]

Your payments may just possibly give you an equitable claim in the disclaimed lease, such that you would have a proportion of the sale proceeds. Reason: it seems to me you may be in the position of a third party now that your legal interest has been extinguished: third parties paying mortgages with the lender's knowledge can sometimes (sorry, details beyond me) acquire rights in the property. Some reference here, though not an exact fit for your situation.

Legal News & Insights | Irwin Mitchell

www.irwinmitchell.com

I will ask about this in my consultation, thanks.
WW

 

[Solvelaw]

The first thing I did was to get copies of the leasehold title. The lender has not intervened. I’m still stated as proprietor, but there is a bankruptcy restriction, plus the notice of the TIB disclaimer. There is also obviously the mortgage in the charges register. I have a free consultation tomorrow with a local specialist. Will post on here the advice I get. Thanks all for the interest.

WW

The mortgage remains but you do not have a lease irrespective of the office copies because title is extinguished. You would need to get the freeholder to agree to grant you a new lease and a deed of substituted security. You need to get on to the lenders legal department as technically this is far from an ideal position for lender to be in. Good luck with the appointment...if there a sure fire way to apply out of time (as there is discretion in court power) whether it is commercial viable, is another matter.

 

[Woodstain Wally]

The mortgage remains but you do not have a lease irrespective of the office copies because title is extinguished. You would need to get the freeholder to agree to grant you a new lease and a deed of substituted security. You need to get on to the lenders legal department as technically this is far from an ideal position for lender to be in. Good luck with the appointment...if there a sure fire way to apply out of time (as there is discretion in court power) whether it is commercial viable, is another matter.

Thanks. Solicitor was wrong choice. I knew more than him. I will try lender again but not hopeful as they’re a faceless mortgage servicing bureau (Acenden) on behalf of SPML (who seem to be winding down, per companies house). I’ll also approach the freeholder about a new lease equal to the remaining term.
Plan A - new lease then sell, redeem mortgage, perfect.
Plan B - negotiate with lender’s legal team as to route to them selling. So long as they don’t ruin my (now perfect) credit rating.

It’s clear to me now in insolvency service guidance to trustees that they should have told me to stop paying any of the liabilities re the property. They did not. So I continued.

I’ll post progress. Thanks

 

[eteb3]

I’ll also approach the freeholder about a new lease equal to the remaining term.

When negotiating with the landlord, be sure of your position: as far as *I* can tell (but who am I), as between you and them you have a lease by estoppel: they've taken rent off you while knowing of the disclaimer (presumably, but how flakey was the TiB? Maybe they never had notice).

That means they can't deny your right to the property and you can't deny their title. (Your tenants would be in the same position with respect to you, if you had any.)

In other words as long as you only want to sublet, you may already have half of what you've said you're seeking from them. I know you want the legal estate, quite rightly, but think it's worth having a sense of what walking away from the deal looks like. Check with a lawyer, obvs.

And when you know what the final damage is, how about a claim against your TiB, for not telling you to cease rental payments?!

 

[Woodstain Wally]

When negotiating with the landlord, be sure of your position: as far as *I* can tell (but who am I), as between you and them you have a lease by estoppel: they've taken rent off you while knowing of the disclaimer (presumably, but how flakey was the TiB? Maybe they never had notice).

That means they can't deny your right to the property and you can't deny their title. (Your tenants would be in the same position with respect to you, if you had any.)

In other words as long as you only want to sublet, you may already have half of what you've said you're seeking from them. I know you want the legal estate, quite rightly, but think it's worth having a sense of what walking away from the deal looks like. Check with a lawyer, obvs.

And when you know what the final damage is, how about a claim against your TiB, for not telling you to cease rental payments?!

Thanks. Incoming rant.
What I want is to get out without too much financial pain. Repairing the title is a means to an end ie I can then sell, redeem the charge and walk away. I don’t care about making money or subletting. But I’m missing key parts of the puzzle. Will the freeholder play ball? How much money will I have to find to make it happen? Could I walk away, let power of sale kick in, bend over and take a possession order/impact on credit history, or would that be a risk? If lender can’t step in and repair the title so they can sell and redeem, will I be faced with an unsecured debt, statutory declaration for the full amount of the mortgage, bankruptcy AGAIN? As it stands, I can kick the can down the road by paying the interest only mortgage until the end (9years). Then we have a problem.

I have asked the last useless solicitor (who wanted 2k off me to apply for a vesting order, but backtracked when he realised the 3 month window was well gone) to ask for a quote to get opinion of counsel. It might not be too bad. I might be able to afford it. Useless lender. Useless solicitors. Useless Trustee. There must be someone out there who can recommend a lawyer who knows what to do next. This can’t be the first case of its kind. I’ve done nothing wrong! Forgot to say I am the only earner in a family with 5 kids. I’m probably worth more to them dead! (mild sarcasm)

Rant ends for today.

 

[Woodstain Wally]

Thanks. Incoming rant.
What I want is to get out without too much financial pain. Repairing the title is a means to an end ie I can then sell, redeem the charge and walk away. I don’t care about making money or subletting. But I’m missing key parts of the puzzle. Will the freeholder play ball? How much money will I have to find to make it happen? Could I walk away, let power of sale kick in, bend over and take a possession order/impact on credit history, or would that be a risk? If lender can’t step in and repair the title so they can sell and redeem, will I be faced with an unsecured debt, statutory declaration for the full amount of the mortgage, bankruptcy AGAIN? As it stands, I can kick the can down the road by paying the interest only mortgage until the end (9years). Then we have a problem.

I have asked the last useless solicitor (who wanted 2k off me to apply for a vesting order, but backtracked when he realised the 3 month window was well gone) to ask for a quote to get opinion of counsel. It might not be too bad. I might be able to afford it. Useless lender. Useless solicitors. Useless Trustee. There must be someone out there who can recommend a lawyer who knows what to do next. This can’t be the first case of its kind. I’ve done nothing wrong! Forgot to say I am the only earner in a family with 5 kids. I’m probably worth more to them dead! (mild sarcasm)

Rant ends for today.

May I place on record my thanks to those of you who have given your time and brain power to responding to this thread. This is a complicated one. I send you my heartfelt thanks. It is appreciated.

 

[Lisa Thomas]

Can you speak to the Bank to see what their stance is first?