An Order for Sale – a rarely used but often effective tool
Friday 29th December 2017
The recent publicity over the Constantines being forced to sell their home highlights the effective use of enforcing a judgment via an Order for Sale. Orders for sale of property are rarely used in England & Wales, with only a few hundred cases a year, as opposed to the thousands of charging orders, warrants and bankruptcy petitions that are issued by the courts.
The publicity suggests that the Constantines have been forced out of their home without any proper judicial scrutiny. This wouldn’t have been the case. Prior to an Order for Sale having been made, various steps would have been taken. In the Constantines’ case, their home is being sold to pay for their neighbours costs following a long and acrimonious boundary dispute. In those proceedings, the court concluded, having considered the evidence, that the Constantines should pay their neighbours costs. This decision resulted in a judgment being entered against them.
Most judgments are only entered after the debtor has been given the opportunity to defend the claim. If the court concludes that the money is due, then judgment will be entered. If the Judgment isn’t paid, the creditor can then enforce the judgment. One option is to apply for a charging order over the debtor’s property. This involves a further court claim and judicial scrutiny prior to a charging order being made. A charging order secures the judgment debt against the property, to the extent that there is equity available. Thousands of charging orders are granted each year. The creditor can then sit on the charge until the judgment debtor looks to sell the property or remortgage. Alternatively, the creditor can make a further claim for an order for sale. Again, the claim faces judicial scrutiny and an order will only be made as a last resort, balancing the need for the creditor to get paid, against the requirements of the debtor.
When making an application, the creditor has to take various steps including notifying any interested parties, informing the debtor and any other occupiers of the risk that they may lose their property and also obtain a valuation. At the hearing, which the debtor is invited to attend, the court then makes a decision. As a rule of thumb, where there is equity in commercial or investment property the order is likely to be made. With residential property, especially when children are involved, the courts are understandably reluctant to give the order until all other avenues to payment have been exhausted. There is an exception to this, however, when, following payment of the debt, there would still be sufficient equity available for the debtor to find somewhere else to live. I have been involved in a number of cases when residential properties have been sold for significant prices and, even after payment of the debt, there is still enough money for the debtor to buy another property. On most occasions the debtor has been property rich but cash poor, and has chosen to continue with a ‘millionaire’ lifestyle at the expense of their creditors. I have been involved in cases where debtors have investment properties; receiving rental incomes from commercial and residential tenants, and failing to pass any of that income on to their creditors. Again, they have continued to receive income from an asset at the expense of their creditors, when the asset could be sold to pay their debt. An order for sale has changed that.
Whilst an Order for Sale can at first appear to be a draconian sanction, let’s not forget that the decision would not have been taken lightly and the sale will allow a creditor to be paid money that is due and owing.