A second charge is a legal charge put on a property in favour of a lender.
A second charge comes second in line to a first charge, which would normally be your mortgage.
Therefore when the property gets sold, the first charge - ie your mortgage, will be cleared in full before the second charge receives any money.
The second charge would then have access to any remaining funds up to the amount of the full outstanding balance of the second charge.
Second charges are put on goods or property as a way of securing a debt.
Securing a debt would normally be done voluntarily by applying for a secured loan as a way of releasing of equity from your home.
Secured loans can offer a realistic and affordable alternative to re-mortgaging a property, 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, such as 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 charge can be applied.
However, a second charge can also be granted against the home-owner’s will by means of a charging order.
A charging order is a court order which effectively secures a debt against a property.
Charging orders can only be granted if the creditor has a County Court Judgement against you, and you have failed to pay a demand for the full amount outstanding, which is also known as a Forthwith Judgement, or if you have failed to maintain your agreed monthly repayments to the court.
Once a debt has been ‘charged’ against a property by the enforcement of a charging order, it can no longer be included in an IVA, as to all intents and purposes, 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.
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