Sale of Bankrupt's Interest in jointly owned property

Sale of Bankrupt's Interest in jointly owned property (ISCIS)

(Amended January 2011)

Introduction

1 Background

One way for the official receiver to deal with a bankrupt’s interest in a jointly owned property is to sell that interest.  The property interest should only be sold if there is a clear benefit to the creditors in doing so.  If a willing purchaser comes forward and makes an offer with a value that is sufficient to benefit creditors the case should be transferred to the RTLU so that they can  deal with the sale of the interest using the low cost conveyancing scheme (see introduction paragraph 2). 

For further details on transferring cases to the RTLU please see the ISCIS Protocol ‘RTLU – Transferring Cases’ which is available on the ORBS intranet page.

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.  

2 The low cost conveyancing scheme

(Amended May 2011)

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 the bankrupt, their spouse, civil partner, partner, relative or friend, without incurring excessive costs.

The low cost conveyancing scheme should only be pursued in the period of  two years and three months following the making of the bankruptcy order where a willing purchaser has made an offer which is clearly in the interest of creditors to accept (i.e. where it is anticipated that bankrupt’s interest is in excess of £1000). (i.e. where the offer is in the region of £1000 or higher)   

3 Requirements

The scheme is generally 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. However, the scheme should only be used if there is a clear benefit to the creditors in doing so (see paragraph 2).

If a prospective purchaser comes forward 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.

See note c for examples of when the low cost conveyancing scheme will not be appropriate.

4 Valuation of the property

Where the official receiver is considering proceeding with a transfer (see paragraph 2) the proposed transferee should be asked to obtain an up-to-date valuation for which he must bear the cost. The main criterion is that the valuation must reflect the current market price of the property, it is therefore important that when a valuation is received the matter is dealt with in a timely manner. 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 official receiver’s discretion

Before embarking on a sale, the official receiver must be satisfied as to the value of the property to be sold. 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.

5 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 a lower offer for the property interest rather than the current higher 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’.

6 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.

7 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). 

8 Time limits

The bankrupt or former bankrupt may introduce an offer to purchase the bankrupt’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.

9 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.  See Technical Manual: Paragraph 31.5.47 for further information on this subject.

10 Solely owned property

For the process relating to solely owned property see Case Help Manual part: Sale of Solely owned Property.

 

Notes:

a. When instructing solicitors on form MP6 (ISCIS ‘Docs’ tab) 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.

b. 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.

c. The low cost conveyancing scheme agreement excludes transactions concerning the following descriptions of property:

a. in the sole ownership of the bankrupt;

b. which is not used solely for domestic purposes;

c. for which planning permission for a non domestic purpose has been applied for or granted;

d. which is subject to an uncompleted conveyancing transaction at the date of the bankruptcy order;

e. 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;

f. 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;

g. the sale of freehold reversions.

Where can I find out more?

Technical Manual

Chapter 33 The Family Home

Chapter 31.3  Dealing with freehold and leasehold property

Chapter 31.12 Jointly owned tenanted property

Technical Notices:

T57/10 – Revision to the way in which the family home is to be dealt with

Management Notices:

M72/02 - Drive by Valuations

Case Help Manual:

Sale of Solely owned Property

OROS Articles:

Assets - Drive-by valuations

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 where the property interest is expected to exceed £1000.

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

MP7 Mortgaged Property (7) – A letter sent to the bankrupt and/or co-owner of a property at the property review stage inviting an offer to purchase the bankrupt's interest in that property from the official receiver.

 

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 consideration must be given to the type of property (e.g. ‘family home’ or ‘tenanted property’) under review as this will dictate the correct course of action that the OR should take.  See CHM part Family home and Technical Manual Chapter 31.12.

2. Where it is expected that a transfer of the official receiver’s interest under the low cost conveyancing scheme would be in the interest of creditors a letter should be sent to the bankrupt and any joint owner(s) inviting them to make an offer to purchase that interest.  Form MP1(available on the ORBS intranet site) should be used for this purpose at the initial stages of a case.  Following the review form MP7 (ISCIS ‘Docs’ tab) should be issued instead, even if form MP1 has been sent previously. Form MP1 or MP7 should no longer be sent where the value of the bankrupt’s interest is below £1,000.  NB In cases where the bankrupt has an interest in a property or properties that are tenanted do not send form MP1 without specific instructions to do so from the examiner.

3. If an enquiry or offer has been received regarding purchasing the bankrupt’s interest this should be referred 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  and evidence of the current amount(s) owed to each mortgagee and/or charge-holder 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 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 should be paid directly to TLT Solicitors of Bristol or the official receiver. 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.  Once the funds have cleared, arrange with the cashier for a cheque to be raised through EAS  for £211 made payable to TLT Solicitors.

7. Complete form MP6 on ISCIS (ISCIS ‘Docs’ tab). 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. whether freehold or leasehold property, title number and location of deeds, if known
  6. 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 restriction 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.

If the deposit cheque is made payable to the official receiver the form must be sent to EAS who will attach the cheque and forward on to TLT Solicitors

9. Before sending form MP6 to TLT either via EAS or directly (if the costs were paid directly to TLT) 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 ISCIS, (‘Assets’ tab).

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.  Once this confirmation has been received ISCIS should be updated and the confirmation recorded against the asset as a note (‘Assets’ tab).

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.