On our recent podcast series, we talked about third party interests and how they can impact on an Equity Release application. We cover what a charge on a client’s title means, the types of charges and restrictions that could be found on a property title, how to deal with them, and what information is important for advisors to find out before instructing us.
What are Third-Party Interests?
Third-party interests is interest relating to other people, companies or lenders who are not our client. Third-party interests on a property title can be varied and something we’ll always have to deal with as part of the Equity Release process. These will often be picked up on instruction by a simple title check.
What is a Charge on a Client’s Title?
Secured lending is commonly registered on a property title as a legal charge. For example, existing mortgages, and they’ll need to be settled in full on completion. We will therefore need the mortgage account number to contact the existing lender for a settlement figure. This figure will be checked against the mortgage offer to ensure there is no shortfall. On completion, the lender’s solicitors will settle the balance prior to sending us any surplus funds for the client. In some instances, the mortgage may have already been paid but the legal charge remains on the property. This will commonly act as a notification that the original title deeds are held with the lender and a uninominal balance may be outstanding. We will confirm this with the lender and arrange for the charge to be removed from the title prior to completion.
Restrictions on a Client’s Title
The most common restrictions we see are lender restrictions relating to existing mortgages. Form A restrictions indicate the client has elected to hold the property as tenants in common. Management company restrictions usually relate to maintenance of the property or surrounding area.
Lenders restrictions are dealt in the same way as a standard existing mortgage. We contact the lender to obtain a redemption figure and then we settle the balance on completion. Form A restrictions indicate the clients hold the property tenants in common. This is often no cause for concern as this will only require further action if one of the proprietors have passed away. In these instances, we will require the death certificate, will, and grant of probate.
Management company restrictions will often require us to obtain a certificate of consent for the charge to be registered. We will require the details of the Management Company and consent to contact them for the request of the certificate. The certificate of consent will be provided to the Land Registry on completion, meaning the lender can register their charge.
Trusts
Typically, trusts will be noted under a restriction. It’s not an area of law that we deal with but we do have specialist firms we can refer a client to. The trust will need to be unwound prior to completion of the Equity Release.
Housing Act Charges
Houses purchased at a discounted price, such as ex-council houses, may have a housing act charge on the title. Commonly, these expire within three years with the discounted repayment value decreasing by a third each year after purchase. We will check the date of the purchase and the expiry date of the charge. If this period time has elapsed, no further action will be necessary. If the charge has not expired the client will have to pay the value remaining on the discount.
It is certainly important that advisers find out whether the client’s house was an ex-council house as this can have an impact if the housing act as a restriction. For example, section 157 housing act restriction relates to local occupancies. This is fairly uncommon, however, they’re more likely to be registered on properties located in an outstanding natural beauty area. The effect of the restriction may mean repossession or resale of the property is really difficult, making them undesirable to the lender. Due to this, the lender is unlikely to proceed. This is ultimately an important consideration when you’re meeting with the client in these areas.
Leases
If a client has a lease noted on their freehold title, will this matter? A leasehold interest noted on the property title will need to be registered or removed for the Equity Release to complete. We will require the original title deeds which need to include the original lease of the property in order to take appropriate action.
Equitable Charges
An equitable charge is a form of a secured charge against the property and is commonly created by a court due to defaults on payments, such as lenders or utility services. These charges need to be repaid on completion as a normal registered charge would be, so a redemption statement needs to be requested. You would need to get these from a solicitor who acts on behalf of a lender, which can take some time to obtain these.
It is therefore important for advisers to find out if clients have previously had any debt problems with utility companies.
Legal Aid
Legal Aid is usually on the title because of divorce proceedings. These will also need to be paid on completion of the Equity Release. There is a common misconception that it needs to only be repaid on sale, but an Equity Release will trigger the repayment of the legal aid charge. Again, it’s the same sort of process with obtaining a redemption figure for settlement. For these, there is no expiry date on them so they just act like a normal legal charge.
Private Charges
Charges relating to individuals are known as private charges. For example, if a client has lent money to an individual and they have secured their interest against their property, this would be a private charge. We would need the client’s consent to contact the individual and confirm the settlement figure for completion. Additionally, the individual will need to complete the Land Registry discharge documents and verify their identity with an independent solicitor. They may also wish to take legal advice on the implications of removing their security.
Home Rights Notice
A home rights notice on a property title is a notice under the Family Law Act which protects a spouse or civil partner’s interest in the property. The home rights notice has to be removed and we’ll require further information such as, has the client been separated or divorced? We’ll deal with this as a matrimonial case, so follow the lender’s additional requirements. For more information about matrimonial cases, we have an information page on divorce and separation.
In Favour of a Lord of a Manor. What does this notice mean?
Usually, these are unilateral notices and they relate to really obscure rights about mines and minerals, or even fishing and hunting. They’re really difficult to remove and highly unlikely to be enacted. The individual with the benefit to such rights is hardly ever going to come back and chase up their right to go hunting or fishing on someone’s land. In these cases, we usually just do an indemnity policy and the lender accepts that. We’ll obtain the quote for the policy and it’ll be purchased on completion with the Equity Release proceeds.
Cautions
A caution just protects an interest or potential interest in land. If they’re in favour of a lender, there usually is some money owing and it’s the standard redemption process. If they are in favour of anyone else, we tend to find the best way to deal with that is just serve notice. We’ll apply to the Land Registry to ask for this caution to be removed and they submit a notice to the beneficiary of the caution. After twenty working days, if there has been no further action, and no sort of objection to the notice, then we can have the caution removed.
Client is Bankrupt
Usually, bankruptcy will be noted on the property title, unless some action has been taken to remove it. If that is the case, we will require evidence that the bankruptcy has come to an end in a form of a certificate of satisfaction. The trustee and bankruptcy may also need to be contacted to confirm that no further interest in the property remains. That allows us to remove the entry on the title. Obviously, if the client is still bankrupt, this is going to cause problems for us.
Resolving Third-Party Issues Efficiently
With all third party interests, we’re relying on the client to provide us with as much information as possible, such as mortgage account numbers and anything the entries may relate to. The more information we have on instruction, the quicker we can resolve the matter.
There is an extensive number of interests that may be noted on a property title. If we have not covered your concern, then don’t hesitate to contact us and we’ll be happy to form a later plan of action.
