Many mortgages, or legal charges as you may hear them referred to, contain various powers to lenders from the moment an individual or a company signs on the dotted line.
However, many of those powers are not exercised until repayments become delayed, missed, sporadic or stop altogether. When they do, many lenders will simply make a demand for payment in full including the outstanding capital, interest and charges and thereafter issue legal proceedings for the property to be repossessed and sold if repayment in full is not made.
This is traditionally the most recognised power of a lender when a borrower defaults. However, for property investment owners with a ‘buy to let’ portfolio of residential properties or commercial properties the more common approach is to appoint a Law of Property Act (LPA) Receiver, these are powers granted to a lender in addition to the commonly known power of sale. The LPA Receiver acts as agent for the Borrower not the Lender and therefore stands in the Borrowers shoes, they instruct that any incoming rent is paid directly to them to be offset against the mortgage and have powers to sell the property as if they were the Borrower and legal owner of the Property.
Whilst legal proceedings pursuing arrears can be suspended or dismissed if arrears can be or are settled within a reasonable time there is usually very little that stops an LPA Receiver in their tracks even if arrears are settled. Whilst an LPA Receiver owes a duty of care to a lender they stand in the shoes of the Borrower, there may be negotiations early on that can be had to resolve matters but costs and interest continue to be added to the original sum borrowed making repayment, refinancing or a settlement increasingly difficult.
If you have arrears and risk appointment of an LPA Receiver or if you are already subject to an LPA Receivership or maybe your considering buying a property from an LPA Receiver then Claire Cooper, in our Commercial Property team, has a wealth of experience to advise on the practical and commercial realities surrounding LPA Receivership and can be contacted on 0121 227 3880 for further advice.