What is a 'Second Charge'?
A Second Charge is a legal charge put on a property in favour of a lender, or creditor.
A Second Charge comes second in line to a 'First Charge', which would normally be your mortgage.
When the property gets sold, the First Charge - i.e. the mortgage, will be cleared in full before the Second Charge receives any money. The Second Charge would then be in line to receive funds from the sale, up to the full outstanding balance of the Second Charge.
Any funds remaining from the sale at this point would be passed to the seller.
What's The Purpose Of A Second Charge?
A Second Charge is put on a property as a way of securing a debt.
In normal circumstances, applying a Second Charge is a pre-condition of being granted a secured loan, which is a very common way to release of equity from a property.
Secured loans can offer a realistic and affordable alternative to re-mortgaging, especially when the home-owner wants access to the equity in the property, but doesn't want to disturb the mortgage that is in place.
For instances, when the mortgage has high redemption charge, or when the mortgage has a favourable interest rate that cannot be improved upon.
A Second Charge lender would need the consent of the First Charge lender before the new charge can be applied.
A Second Charge can also be granted against the will of a home-owner by means of a 'Charging Order'.
A Charging Order is a Court Order which attaches an 'unsecured debt' to a property owned by the debtor, by registering the creditor's interest in the property on the Land Registry.
To obtain a Charging Order the creditor must have already obtained a County Court Judgement which must be in default. Even one missed payment to the judgement can trigger a Charging Order.
The effect of a Charging Order is, therefore, to turn an unsecured debt in to a secured debt.
Charging Orders and IVAs
Once a debt is subject to a 'Charging Order' it can no longer be included in an IVA, because the debt is considered a secured debt.
Continued failure to make payments to a debt that has been subject of a Charging Order could mean the creditor returns to Court an applies for an Order of Sale.
It is rare for a Court to agree to grant an Order of Sale, but it is a possibility. If the Order of Sale is granted, the Court will instruct the property to be sold, and all charges will be paid in line with a normal 'voluntary' sale, as described above.
For further information on OIVAs take a look at our free IVA guides.
Don't Leave It Too Late
If you're struggling with a debt problem, yet you have property that would be vulnerable to a Charging Order, then call My IVA Adviser on 0800 088 7503
By contacting an IVA specialist before it's too late, you could protect your property and block the Charging Order from being granted.
If you call, your consultation will be free, you're not obliged to follow ur advice and our conversation will be held in the strictest confidence.
Call us now, or alternatively, complete this form and one of the team will contact you at your preferred time.