Sale of Bankrupt's Interest in jointly owned property

February 2006

Introduction

i Background

(November 2007)

Where a bankrupt has an interest in a property which is of insufficient value to attract the appointment of an IP, the case should be transferred to the RTLU who will attempt to sell the property under the low-cost conveyancing scheme (see paragraph ii below).

Where the bankrupt has an interest in a property with sufficient value and a willing purchaser and therefore the realisation of the property is not likely to be protracted, the case should again be transferred to the RTLU for realisation of the property.

Where the bankrupt has an interest in a property but the realisation of that property is likely to be protracted, usually where there is no willing purchaser, the official receiver should seek the appointment of an IP. The appointment of a liquidator or trustee may also be appropriate if there are other assets of a complex nature in the case, or where there has been a request from creditors for the appointment of a trustee other than the official receiver.

 

ii The low cost conveyancing scheme

The Insolvency Service has entered into an agreement with a firm of solicitors, namely TLT Solicitors of Bristol, to provide a low cost conveyancing scheme so that a (former) bankrupt’s beneficial interest in a jointly owned property can be transferred to their spouse, civil partner, partner, relative or friend, usually with the transfer of the legal title out of the bankrupt’s name, without incurring excessive costs.

 

iii Requirements

The scheme is available for any property that is jointly owned, even if both owners are bankrupt, and is applicable to domestic freehold (registered and unregistered) or leasehold property.

Once a prospective purchaser is found they must contact the official receiver. They will have to pay for:

  1. a solicitor or licensed conveyancer to act on their behalf in the transaction;
  2. a deposit to cover the OR’s legal costs, currently £211;
  3. the cost of an independent valuation unless an acceptable valuation is already to hand; and
  4. the agreed purchase price of the beneficial interest. If the property is worth less than the amount owed, "negative equity", the price of the beneficial interest will be set at £1.

 

iv Valuation of the property

The official receiver should obtain a professional valuation of the property. The cost of the valuation should be paid for and pre-funded by the purchaser. It may be possible to rely on a recent independent valuation not obtained by the official receiver (where the value of the bankrupt’s interest appears to be minimal). The official receiver may also consider using the ‘drive-by valuation’ service operated by King Sturge, as a guide in deciding whether or not to accept a nominal offer on a property. The prospective purchaser must pay the charge for this.

Before embarking on a sale, the official receiver must be satisfied as to the value of the property to be sold. The main criterion is that the valuation must reflect the current market price of the property. In the event that the official receiver is unhappy with any valuation provided to him/her, he/she is at liberty to seek another valuation, at the cost of the proposed transferee, before agreeing to go ahead with the transaction.

 

v Using ‘subject to contract’ on all relevant correspondence

When dealing with the potential sale of property interests it is important for all relevant correspondence to be headed ‘subject to contract’. This means that the parties do not intend to be contractually bound until another document is signed which will normally occur on the formal exchange of contracts. In effect, the matter is left open until it is concluded formally and if the matter is delayed, the official receiver is not bound to complete at a previously agreed price. In a small number of cases, the completion of the transfer has been delayed sometimes for several years and when the matter is revived the property interest has inevitably increased in value. On occasion, the proposed transferee has sought to complete the transaction based on an open letter from the official receiver accepting the offer (of £1) for the property interest rather than the current (often increased) value. TLT Solicitors have sought to resist such approaches but difficulties could be avoided if all correspondence on the potential sale of the property were marked ‘subject to contract’.

 

vi Instructing solicitors

Instructions should only be sent to solicitors when a purchaser has agreed, subject to contract, to purchase the interest at a settled valuation and has either pre-funded the  official receiver with his/her estimated costs direct or sent a remittance direct to TLT Solicitors (which is preferred).

Form MP6 should be prepared and sent to TLT Solicitors enclosing: certified copies of the bankruptcy order and evidence of the official receiver’s appointment as trustee together with a copy letter from the purchaser’s solicitors or other confirmation that the purchaser has given security for his costs, where necessary.

 

vii Payment

The official receiver should obtain a deposit from the prospective purchaser in respect of his/her legal costs. This amount currently stands at £211; this includes: the fixed price fee for each transaction at £203, including VAT and the level of disbursements which the solicitors have authority to incur without reference to the official receiver, which is set at £8.

Wherever possible, the official receiver should attempt to have the costs deposit paid directly to TLT Solicitors by the proposed purchaser or their solicitors. This means that the official receiver will not have to handle the monies or be responsible for returning any overpayments, etc.

The purchaser should be informed at the time of requesting the funding of the official receiver’s estimated costs that if the transaction is aborted due to their failure to complete the purchase, they will remain liable for the official receiver’s costs (to be recovered out of the deposit).

 

viii Time limits

The bankrupt or former bankrupt may introduce an offer to purchase the official receiver’s interest in the property at any stage throughout the case, even if the bankrupt has been discharged from the proceedings. When accepting an offer, subject to contract, for an interest in a property, the official receiver should indicate that the agreement is for a limited period, e.g. 4 months, so that if the matter has not proceeded or if there is any delay during that period, the official receiver is at liberty to review the position.

There are no set time limits as such for completing this work; however, it is expected to take up to 5 months to complete the transaction.

 

ix Collateral Security

Agreement should be reached between the official receiver and the purchaser as to how any collateral security should be dealt with, subject to contract. The official receiver should seek to dispose of the bankrupt’s interest in any collateral security, such as an endowment policy, to the purchaser together with any interest in the property although this is not an integral part of the transaction. If this is not done, the bankrupt and other purchaser should be fully aware that this is so. NB. The official receiver should ensure that any such security is valid. Sometimes policies are deposited with lenders so that they do not form part of the security, therefore they are "free" assets.

 

x Exclusions

The agreement excludes transactions concerning the following descriptions of property:

  1. in the sole ownership of the bankrupt;
  2. which is not used solely for domestic purposes;
  3. for which planning permission for a non domestic purpose has been applied for or granted;
  4. which is subject to an uncompleted conveyancing transaction at the date of the bankruptcy order;
  5. which is jointly owned by the bankrupt where the purchaser agrees to purchase only the official receiver’s beneficial interest and is unable to pay the deposit;
  6. which is subject to a third party claim (other than in matrimonial proceedings) made before the date the official receiver gives instructions to the solicitors;
  7. the sale of freehold reversions.

 

xi Solely owned property

If the official receiver receives an offer to purchase the (former) bankrupt’s interest in a property that is solely owned, the prospective purchaser cannot take part in the low cost conveyancing scheme. However, subject to certain safeguards, interests can be dealt with in a similar way to that of jointly owned property with appropriate modification. As such, there is no standard conveyancing charge applicable to this work. For more information on this procedure please refer to the Case Help Manual part: Sale of Solely owned Property.

 

xii Dealing with outstanding charges over solely owned property

All outstanding charges over the property have to be dealt with before the conveyancing transaction is completed. The reason for this is that when a solely owned property is sold, the mortgagee(s) will expect to be paid (in full) from the proceeds of the sale. However, mortgagee(s) will consent to the sale by the official receiver as trustee to the (former) bankrupt, providing suitable arrangements have been made with regard to the mortgage debt. Such arrangements can be in the form of a remortgage of the property or an acknowledgement to repay the balance of the mortgage debt as a post bankruptcy obligation (deed of acknowledgement of debt).

It is for the transferee to come to a mutually convenient arrangement(s) with the mortgagee(s) and the official receiver will not be able to proceed with the transfer unless this has been done. The official receiver is not expected to take part in these negotiations other than at the beginning of the proposed transaction to inform the proposed transferee that he/she should take independent advice before entering into such an obligation. This information should be conveyed in a letter, copied to the solicitors or licensed property conveyancer acting for the (former) bankrupt.

 

Notes:

  1. When instructing solicitors on form MP6 the official receiver must enclose a certified copy of the bankruptcy order and evidence of his/her appointment as trustee, certified on form NNM (Notice of No Meeting). These documents are sent to the purchaser’s solicitors to be filed at the Land Registry which will only accept certified copies.
  2. It is also important that when dealing with sales to (former) bankrupts, if it becomes apparent to the official receiver that the (former) bankrupt has formed a fund of monies which should have been notified to the official receiver or (undischarged bankrupts only) that there is surplus income which could be made subject to an income payments order or income payments agreement, proper enquiries relating to those matters should be undertaken.

Where can I find out more?

Technical Manual

Chapter 33 The Family Home

Chapter 31.3  Dealing with freehold and leasehold property

Technical Notices:

T24/03 - Chapter 50: Dealings with the Land Registry

T20/05:Civil Partnership Act

Management Notices:

M2/02 - Change of procedure to cautions lodged with the Land Registry

M72/02 - Drive by Valuations

Case Help Manual:Sale of Solely owned Property

OROS Bulletins:

July 04 para 5: Assets (Home) - Low cost property conveyancing scheme

June 05 para 14: Disbandment of PRU

Mar 05: para 8: Drive-by valuations

Mar 05: para 14: What will happen to my home? leaflet to be sent out with bankruptcy appointment letter (NTB1 & LTI)

Nov 05: para 17: Recording the family home on LOIS  

Forms to be used:

MP1 Mortgaged Property (1) - Letter sent to the bankrupt and/or co-owner of a property inviting an offer to purchase the bankrupt's interest in that property from the official receiver

MP6 Mortgaged Property (6) - A form specified by TLT Solicitors who act for official receivers in the transfer of the OR's interest in jointly owned properties under an agreement between that firm and The Insolvency Service.

 

Click HERE to view the flowchart for Dealing with the sale of Bankrupt's Interest in jointly owned property

 

Procedure

1. When the OR becomes trustee, a letter must be sent to the bankrupt and/or co-owner of a property inviting an offer to purchase the bankrupt's interest in that property from the OR. Check to see if this has been done previously. If not, prepare and send form MP1 to both the bankrupt and co-owner. 

2. Receive an enquiry from bankrupt introducing a prospective purchaser.

3. Refer to the examiner for negotiation. Before agreeing to a property transfer, the OR must ask the bankrupt to submit a current valuation of the property for the matter to be considered properly. It must be stressed to the (former) bankrupt that the OR will not bear the cost of the valuation. The main criterion is that the valuation must reflect the current market price of the property. It is possible that a valuation provided free of charge by a local estate agent in the belief that instructions to sell the property will be received, may be acceptable at the OR’s discretion. The OR may also consider using the drive-by valuation service operated by King Sturge, as a guide in deciding whether or not to accept a nominal offer on a property. The examiner/B1 will be responsible for deciding what method of valuation is acceptable.

4. When a purchase price is settled, papers will be returned to the case officer to await payment of the OR’s deposit for legal costs (£211) together with the agreed sale price. This may be paid direct to the official receiver or via TLT Solicitors of Bristol. It is preferable for the costs to be paid directly to TLT Solicitors by the proposed purchaser as this means that the OR will not have to handle the monies or be responsible for returning any overpayments, etc.

Costs paid direct to TLT Solicitors

5. When you have received confirmation that the costs have been received by TLT Solicitors, go to step 7.

Payment of costs received by OR

6. When payment is received from the prospective purchaser or their solicitors, ensure the cashier posts the remittance on an estate suspense account. Arrange with the cashier for a cheque to be requested on LOLA for £211 made payable to TLT Solicitors. 

Where the case is closed, OR Banking will arrange for these monies to be credited to the Indivisible Balances account for eventual payment to the Treasury. The case does not have to be re-opened on LOIS in order to record the transaction on the asset realisations screen 15.

7. Complete form MP6 on LOIS (DO73). The form is separated into 3 Sections, the information you will require is:

          Section 1

  1. OR’s full name and address details including case officer’s name;
  2. bankrupt’s full name and address
  3. property address including title number (if registered) and agreed sale price
  4. purchaser’s full name and address and details of their solicitors

    Section 2 - need only to be completed if the property is unregistered
  5. e. whether freehold or leasehold property, title number and location of deeds, if known
  6. f. full mortgage(s) details, including name and address of mortgagee(s) together with the account number(s) and date of charge(s)

    Section 3
  7. details of any collateral security to be transferred, e.g. if endowment or pension policy; name, address and policy number of insurance company
  8. details of any notice or caution registered by the OR at the Land Registry
  9. any other relevant information. Include here name and address of co-owner if they are not the prospective purchaser.
  10. you will also need to indicate whether the costs are being paid direct to TLT Solicitors or are being held by the OR.

The form must be sent to OR Banking Section who will attach the cheque and forward on to TLT Solicitors

9. Before sending form MP6 to OR Banking Section, attach the following:

  1. a certified copy of the bankruptcy order; and
  2. evidence of the appointment of the OR as trustee, i.e. form NNM (Notice of No Meeting), again this must be certified
  3. ensure full details of the asset realisation are recorded on screen 15 of LOIS.

10. TLT Solicitors will send confirmation to the OR when the transfer has been completed, enclosing a copy of the deed of assignment, if appropriate.

11. If the costs were paid direct to TLT Solicitors, they will pay the consideration for the equity to the OR and deal with any overpayment of legal costs directly with the purchaser.

12. Ensure that the consideration for the equity is posted to the main estate ledger and if a suspense account was opened that it has a nil balance and has been closed.

13. File papers accordingly.