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Buachaill, Barrister
Category: Law
Satisfied Customers: 10527
Experience:  Barrister 17 years experience
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I signed a Personal Guarantee to a high street lender for

Customer Question

I signed a Personal Guarantee to a high street lender for £900,000.00, which I think the lender is now going to go after, now the situation I am in is that I have five Buy to Let properties in my personal name, all with one lender, all the properties have
2nd charges, registered with Land Registry, between 2005 and 2012, the borrowings on the properties are more that the values of them, so as an example on one property : 1st charge is £150,000 the 2nd charge, which was registered about 8 years ago, is in excess
of £200,000 + interest, the value of the property is around £350,000. I have a relationship with the 2nd charge holder by way of, when the rent is paid to me the 1st charge is paid and the remainder of the rent is paid to the 2nd charge holder. If the Bank
issue me with Bankruptcy proceedings, can they sell these five properties. I am separating from my wife, so if I was to sell these to my wife, could the bank reverse the sales and reclaim the properties? If I was to do an IVA could I / my wife retain the properties
Submitted: 1 year ago.
Category: Law
Expert:  Buachaill replied 1 year ago.
1. Firstly, if the bank were to issue you with bankruptcy proceedings, they certainly could sell these five buy to let properties, even though they would not get anything as the prior ranking charges would take the proceeds. Secondly, if you sell these five properties to your wife in the face of bankruptcy, you will need to sell them for full value, as there are clawback provisions in bankruptcy proceedings where any transfer for value can be impugned for up to six months before bankruptcy and any transfer for no value can be set aside up to five years pre-bankruptcy. Any bank, who sees you selling these five properties to your wife is going to be suspicious about what is going on and where your wife is getting the proceeds to purchase these properties from. So they will most certainly look to set them aside if they were sold for anything less than full value.
Expert:  Buachaill replied 1 year ago.
2. Secondly, you will only be able to do an IVA if your assets exceed your liabilities. The bank holding the guarantee will not settle for less than full value. The only reason an IVA would work is if you can show you were going to earn enough over the next five years to pay everybody off handsomely. There would need to be a margin of appreciation for the bank to agree to an IVA if you are currently bankrupt. Finally, be aware that whilst your wife and you are two separate entities so far as the law is concerned, any bank will be suspicious if your wife suddenly starts buying your assets when you are insolvent.
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Customer: replied 1 year ago.
Thank you for your response .... So are you saying, the bank can force sales of my five Buy To Let properties? Obviously the 1st and 2nd charge holders would be paid off from the proceeds, but what if the loans on the properties exceed the values of the properties, what happens in that situation ?
Expert:  Buachaill replied 1 year ago.
3. The point is that the bank is not prevented from forcing the sales as part of the bankruptcy process. What happens with the proceeds is then a different issue. Obviously the secured chargeholders will take first.
Customer: replied 1 year ago.
So on one of the properties there is a 1st charge outstanding of £150,000 and a 2nd charge in excess of £200,000, the property is worth on the market today about £320,000, but obviously if it's a forced sale it would be priced to sell quickly of around £280-£300, which wouldn't be enough to clear the 2nd charge holders loan. Would the bank have to seek authority to sell from the 2nd charge holder ?
Expert:  Buachaill replied 1 year ago.
3. The nature of a bankruptcy process is that the trustee in bankruptcy takes over it all and decides which is going to be sold and which not. Not the bank. However, the trustee always sells anything of value, even if there is more than one charge on the property. There is no "preserving" of assets.
Customer: replied 1 year ago.
But can the trustee and bankruptcy Sell the properties at a forced sale price which would not pay off the 2nd charge in full of the outstanding debt
Expert:  Buachaill replied 1 year ago.
4. Yes, the trustee in bankruptcy can sell the properties at a force sale price which would not pay off the second charge in full. The trustee can do whatever will get the best price. There is no obligation on the trustee to preserve some ownership or security arrangement just because the person in bankruptcy wants this to happen.
Customer: replied 1 year ago.
So just for clarity purposes :In your first answer to me it states that if the bank were to issue me with Bankruptcy proceedings they could sell my five Buy to Let properties even though they would get nothing as prior ranking charges would take the proceeds ?In the third answer you confirm that the secured charge holders will take the funds first ?In your last answer you state that the Trustee in Bankruptcy can sell these properties at a forced sale price, which would not pay the 2nd charge holders in full, which would mean the 2nd charge holders would loose some of the money they initially lent. Therefore my question is would the trustee of bankruptcy sell the properties, as I explained :
Property value £320,000.001st mortgage £150,000.00
2nd charge. £200,000.00
Total outstanding £350,000.00The current market value of the property is £320,000.00, if it's a forced sale they would only get around £280,000.00. So are you saying that the 2nd charge holder would be at a potential loss of £70,000.00 ? As a 2nd charge holder would they have to agree to a forced sale ? What would happen if they objected ?If I was made bankrupt would the lender get nervous and call the funds in on my buy to let properties ? Am I allowed to have properties if I am a bankrupt ?
Expert:  Buachaill replied 1 year ago.
4. I am sorry if I didn't make it clear that Yes the trustee in bankruptcy would sell all your assets, including your charged assets. Of course the charge holders might get nervous and call in their security. It is every dog for himself when bankruptcy arrives. The bot***** *****ne is don't expect to be left with anything if you are made bankrupt.
Customer: replied 1 year ago.
Thank you for your response, but where I am trying to get to is ;E.g : the property has a 1st charge with Coventry BS of £150,000.00
2nd charge with Private Lender of £200,000.00
Therefore total owed on this property is £350,000.001. Can the Trustee of the Bankruptcy sell this property (which you have already answered Yes too)
2. If sold, they would sell at a sale price of £350,000.00, am I right in saying that £150,000.00 would go to Coventry BS and £200,000.00 would go to the Private Lender ?In these circumstances why would they sell ? How would the Trustees get any benefit from the sales ?If the trustees sold this property at a forced sale price of say £300,000.00 would the 2nd charge holder (private lender) would be able to object to the sale as they would be getting less than what is owed to them?Can the Bankruptcy over ride the 2nd charge holder ?
Expert:  Buachaill replied 1 year ago.
5. The aim of bankruptcy is to pay off all your creditor, whether they are secured creditors or not. both Coventry BS & THE private lender are creditors and have to be paid in the bankruptcy. Selling the properties crystallises how much they are owed. then the remainder gets proved in bankruptcy and get so many pence in the pound. Some debts don't "hover" out there just because they are secured or you might like it that way. The aim is to divide the assets among all the creditors. Not leave some creditors in existence. Just because they are secured.
6. I know you don't like this. But this is how bankruptcy works. Assets and liabilities don't survive bankruptcy. They get converted in to claims in bankruptcy and get paid off, one way or the other.

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