Citizens Advice has accused lenders of intimidating borrowers by threatening to make them sell their homes even where the debt was not secured against the property.
The charity has reported a 722% increase in the number of applications for charging orders – this is where a lender applies to the court to change a previously unsecured debt into one that is secured against the debtor’s property. The creditor can then recover the debt by forcing the sale of the property.
The most recent figures from the Ministry of Justice show that nearly three quarters of charging orders applications made are accepted.
David Harker, chief executive of Citizens Advice, says: “Some creditors are using the court process as a tactic to intimidate vulnerable debtors into paying unaffordable amounts. This is not only unfair to the individuals concerned who have offered payments towards their debts but is also unfair to other creditors.”
While the government has dropped plans that would have made it easier for creditors to get charging orders, Citizens Advice warns the law is still unclear – enabling creditors to convert people’s debt with “increasing ease.” For example, there is no minimum amount for obtaining a charging order, meaning borrowers could be at risk of losing their homes over a small amount of money.
What is a charging order?
A Ministry of Justice guide states that charging orders are a way for creditors to “safeguard” their money by securing the amount of money they are owed against a property, piece of land or even stocks and shares and savings. A judge will normally only issue a charging order in cases where the debtor has failed to meet one or more of their repayments or failed to pay the full amount due at the end of the term.
When the property is sold then the ‘charge’ must be paid first before the owner receives any of the proceeds.
While a charging order does not mean the borrowers must sell the property. However, the creditor can apply to the court for an Order for Sale. If this request is approved, then you will be forced to sell your home and the money owed to the creditor will be paid out of the proceeds.
The Office of Fair Trading (OFT) is currently monitoring the use of charging orders in response to the rise in the number of applications being made by lenders – and the increase in these being granted by the courts.
While the OFT says only a small proportion of lenders who obtain charging orders then go on to make Order for Sale applications, there is nothing to say this won’t increase down the line.
Source
Monday, September 21, 2009
Monday, September 7, 2009
Lenders repossess homes for credit card debt
Debt charities have attacked high street banks for repossessing homes to recover debts of just a few thousand pounds.
Thousands of borrowers struggling to repay credit cards or personal loans are at risk of losing their homes because lenders are increasingly keen to secure debts against a borrower’s property, Citizens Advice warned today. The charity has reported a huge increase in the number of charging orders made against homeowners struggling with unsecured debt.
David Harker of Citizens Advice said: “Some creditors are using the court process as a tactic to intimidate vulnerable debtors into paying unaffordable amounts. The law leaves debtors far too exposed to unfair treatment and the risk of losing their homes.”
A charging order secures a debt against a property, and allows creditors to apply for an “order for sale” to recover the debt by forcing a sale of the property. It means borrowers could lose their homes over potentially very small sums of money.
Since 2000 there has been a 722 per cent increase in the number of charging order applications, according to the Ministry of Justice. Around 74 per cent of the 132,000 applications made in 2007 were agreed by the courts.
The law currently states that creditors can only apply for a charging order if the borrower has a county court judgment (CCJ) and has been ordered to settle the entire debt and has not paid, or the borrower has been ordered to pay in installments and has missed a payment.
However, Mr. Harker said: “We are now seeing cases that suggest charging orders are being granted even when these circumstances do not apply. Both creditors and judges are working round existing legal safeguards for debtors.”
Lenders frequently initiate court action even if a borrower has arranged a debt repayment plan with a charity such as Citizens Advice, whereby a borrower arranges to make smaller, more affordable monthly repayments. Around 600,000 borrowers are now in debt repayment plans, according to Credit Action, the charity.
Chris Jary of Action for Debt, a debt advisor, said: “Charging orders are now very common and in some cases this will lead to an order of sale. A client from Bradford recently had an order for sale on his house to recover an unsecured loan debt of £12,000. Some orders for sale have been made for debts as little as £4,000.
“It seems particularly iniquitous given that nowhere on the paperwork of a personal loan or credit card does it normally say your house will be repossessed if you do not keep up repayments.”
Many orders for sale are also made by debt purchase companies, who buy default credit accounts from banks and finance companies. Mr Harker said: “These companies are looking to maximise returns and may not be restrained by the same reputational concerns as some high street lenders.”
The Government has already announced a number of schemes to help homeowners struggling with mortgage payments to avoid repossession, including the Homeowner Mortgage Support Scheme, which allows households to defer interest payments for up to two years. However, no extra protection has been offered for homeowners struggling with unsecured debt.
“A number of changes are needed to enforcement legislation to ensure that charging orders and orders for sale become a last resort,” said Mr Harker.
Source
Thousands of borrowers struggling to repay credit cards or personal loans are at risk of losing their homes because lenders are increasingly keen to secure debts against a borrower’s property, Citizens Advice warned today. The charity has reported a huge increase in the number of charging orders made against homeowners struggling with unsecured debt.
David Harker of Citizens Advice said: “Some creditors are using the court process as a tactic to intimidate vulnerable debtors into paying unaffordable amounts. The law leaves debtors far too exposed to unfair treatment and the risk of losing their homes.”
A charging order secures a debt against a property, and allows creditors to apply for an “order for sale” to recover the debt by forcing a sale of the property. It means borrowers could lose their homes over potentially very small sums of money.
Since 2000 there has been a 722 per cent increase in the number of charging order applications, according to the Ministry of Justice. Around 74 per cent of the 132,000 applications made in 2007 were agreed by the courts.
The law currently states that creditors can only apply for a charging order if the borrower has a county court judgment (CCJ) and has been ordered to settle the entire debt and has not paid, or the borrower has been ordered to pay in installments and has missed a payment.
However, Mr. Harker said: “We are now seeing cases that suggest charging orders are being granted even when these circumstances do not apply. Both creditors and judges are working round existing legal safeguards for debtors.”
Lenders frequently initiate court action even if a borrower has arranged a debt repayment plan with a charity such as Citizens Advice, whereby a borrower arranges to make smaller, more affordable monthly repayments. Around 600,000 borrowers are now in debt repayment plans, according to Credit Action, the charity.
Chris Jary of Action for Debt, a debt advisor, said: “Charging orders are now very common and in some cases this will lead to an order of sale. A client from Bradford recently had an order for sale on his house to recover an unsecured loan debt of £12,000. Some orders for sale have been made for debts as little as £4,000.
“It seems particularly iniquitous given that nowhere on the paperwork of a personal loan or credit card does it normally say your house will be repossessed if you do not keep up repayments.”
Many orders for sale are also made by debt purchase companies, who buy default credit accounts from banks and finance companies. Mr Harker said: “These companies are looking to maximise returns and may not be restrained by the same reputational concerns as some high street lenders.”
The Government has already announced a number of schemes to help homeowners struggling with mortgage payments to avoid repossession, including the Homeowner Mortgage Support Scheme, which allows households to defer interest payments for up to two years. However, no extra protection has been offered for homeowners struggling with unsecured debt.
“A number of changes are needed to enforcement legislation to ensure that charging orders and orders for sale become a last resort,” said Mr Harker.
Source
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