Lenders accused of debt intimidation
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.