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Ask Ash Your Own Question
Ash
Ash, Solicitor
Category: Law
Satisfied Customers: 10916
Experience:  Solicitor with 5+ years experience
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I am nota solicitor, but have a client that has put substantial

Customer Question

I am nota solicitor, but have a client that has put substantial money into a development project he has recently secured a second charge on a development property where the 1st charge is a very expensive bridging facility.
The borrower a developer has taken from him a substantial amount of cash for a 2nd charge, there is no interest payable but an agreement to pay back with a bonus when the development is finished. It has been apparent that the developer has been taking the cash and not progressing at all. The developer is about to go into default as they are not able to service the interest. The client has been covering the payments on the 1st charge and can not continue further, to date £190k of payments. I am worried that if the 1st charge holder calls in the loan it could cause serious problems.
my question relates to a couple of different elements. Can my client buy out the 1st charge without the consent of the borrower, I want to stop the 1st charge loan going into default and a LPA receiver being appointed. Or would this be a good thing if I want to purchase the property.
in the agreement there I a second property mentioned (on the be it a simple /brief agreement) that the client can take a charge on in the event that this development fails to return my investment but the developer is now trying to sell that in advance of the client being able to secure a charge. thanks
Submitted: 3 years ago.
Category: Law
Expert:  Ash replied 3 years ago.

Alex Watts :

Hello my name is Alex and I will help you with this. Please note that I am a working Solicitor and may be on and offline as I have to attend Court and meet with clients, even at weekends. As such you may not get an instant response when you reply as this is not an ‘on demand’ live service, but rest assured I will be giving your question my immediate attention upon return. There is no need to wait here, you will get an email when I reply.

Alex Watts :

. Can my client buy out the 1st charge without the consent of the borrower, I want to stop the 1st charge loan going into default and a LPA receiver being appointed. - Only if there is an assignment clause in the contract between the 1st charge and the borrower. If not then this can not be done.

Alex Watts :

Or would this be a good thing if I want to purchase the property. in the agreement there I a second property mentioned (on the be it a simple /brief agreement) that the client can take a charge on in the event that this development fails to return my investment but the developer is now trying to sell that in advance of the client being able to secure a charge. - The LPA will sell the property and recover the cost so it may be better that way as it may be you get the property cheap on the basis there is already a further charge.

Alex Watts :

Can I clarify anything for you about this today please?

JACUSTOMER-jiat20aq- :

The assignment clause you mention 'in the contract', is that the loan agreement that is between the primary lender and the developer? As there is now a breakdown and the developer is not compliant or helpful there will need to be an approach and discussion between the primary lender and the client with the 2nd charge.

JACUSTOMER-jiat20aq- :

Sorry I hit return and had not finished!

Alex Watts :

Yes it would have to be between the developer and primary lender.

Alex Watts :

Otherwise you can not buy the debt

Alex Watts :

Does that help?

JACUSTOMER-jiat20aq- :

there is a brief agreement between the developer and my client the investor or (the 2nd charge holder) in this agreement additional security is mentioned, called 'church street' this property is offered as additional security by the developer to the in the event that the first property did not perform to return the investment. This first property is looking like an imminent default. With this in mind the developer is trying to sell before the investor can secure a charge.

Alex Watts :

No I don't think he can. The charge between the developer and 1st charge holder must have an assignment clause.

Alex Watts :

A charge must be secured before sale on the church street, it should have been done as soon as there was a whiff of trouble.

JACUSTOMER-jiat20aq- :

The LPA receiver will only be appointed on the first property Cyprus Road that the primary charge holder / a bridging company (LMC) has a charge against and not the second property church street that has just a regular 'buy to let' mortgage on it. The question here is about what can be done to secure a charge on the additional property (church street) as at this time there is no default. Due to there being no charge in place, just a basic signed agreement saying that the security could be given in the event of a shortfall on the first property Cyprus Road, then I am unsure if a default can be claimed, if any judgement has to set alongside a default, and there is no default therefore no interim charge can be registered. Therefore I wanted to establish if there was another way of getting a charge if the developer was not compliant despite there being an agreement to give security in the event of a shortfall on the first property. Thanks and sorry for not being clear.

JACUSTOMER-jiat20aq- :

This is the first sign of trouble! There is an agreement but no charge is in place at this time on the additional security /second property. The challenge is how to get a charge on the additional property with only a signed agreement and not a signed charge document before the developer just sells and takes the equity returning nothing to the investor despite there being an agreement.

Alex Watts :

Only if the developer consents can you get a charge, otherwise you can not. If there is no breach or default then a CCJ would be useless.

Alex Watts :

You can only get a charge legally by consent, no other way I am sorry.

Alex Watts :

I am sorry if this is not necessarily the answer you want and it is certainly not the one I want to give, but I have a duty to be honest.

Alex Watts :

Can I clarify anything for you?