charging order absolute

[virgil]

i am seriously looking at purchasing a property at mortgagee auction. on the CT a charging order absolute is listed between the origional proprietors & a business. I have a copy of the COA in the info pack & its for rather a large amount of money. how cautious should I be with this? if sucessful with bidding will the COA be automaticaly be released & no further claim against myself or the title be evedent upon settlement? This is the first time I have come across this interest or impediment on a CT. any help would be appreciated

[Keithw]

Be very careful
A charging order is against the property for a reason, as opposed to being against the business.
It could mean that if the proceeds of sale are not enough to cover the first mortgage (charge) then the order remains on the property & you could become liable to pay it !!!

This is normally the thinking behind those that place the order. They want their money & the charging order puts them in a gauranteed place on the recover line, so if they force a mortgagee sale, even if the sale doesnt get enough to fully pay back the bank in front of them, their order may still remain, so then they can effectively try to claim it off you !!!!

To transfer ownership clear title will be required, so if the charge holder doesnt release their charge, ie they dont get their money, I think the first mortgage holder must then apply to the court or make a special application for ownership change to have the charge blown away. Often it maybe just easier for them (the bank) to pay out the charge holder & add to the sellers total amount outstanding. Depends on how desparate the bank is to get the property sold.
If it is a really big number, the bank may not be interested in paying out that, its just more bad money at risk of being lost.
If not desparate at all, I guess the sale may just get held up until a better offer comes along

Get some proper legal advice before taking this one on

Hoepfully someone more qualified than me will chime in here & qualify the risk

[virgil]

thanks. I have just noticed a 1 letter despcrepency in the name spelling on the charging order to that on the CT. would this be help for any "fight" undertaken by the sucessful purchaser or is this just noise?

[Keithw]

I think it is probably just noise.
The courts can be really schizophrenic ! (is that how its spelt ?)

On one hand they insist on absolute accuracy,and technical errors are enough to throw a case out, on the other hand if the error is so minor as to make no difference, and the name is close enough to be identifyable as the relevant person, then they let it slide !

I was in the high court just yesterday and some affidavits that were presented did not have the authority they required, however the Judges view was if the content was not at issue, and the content was useful to her making a decision in the case, but not crucial to the case, then they were allowable even though they did not meet the requirements of the law !

In my experience our Court system is as waffley as a foggy morning in the Waikato, and often makes a mockery of the law.

[Keithw]

I note that in this thread XAV says the charging orders fall away if insufficient funds.
Like I say- get some legal advice !

[Keithw]

some interesting bits out of this doc

A Charging Order Absolute prevents registration of any conveyance, transfer,
assignment or disposition of any estate or interest (Section 96A(2)(b) District Courts
Act 1947). However these charging orders do not prevent registration of caveats,
notices of claim, rating charges or another charging order or court order.
Please note
that a Transfer Power of Sale under a Rating Charge would still require the Charging
Order to be discharged or cancelled by court order prior to the registration of the
Transfer Power of Sale (Mutual Benefit Building Society ex Parte Baynes (1887/5)
NZLR 293 and Firth Concrete Industries v Duncan (1973) 1 NZLR 18.

These charging orders automatically lapse, two years after the date of the order (Rule
600(1)) unless the charging order is extended by the court prior to expiry (Rule

600(2)).

A Charging Order Absolute may be discharged by one of the following (Rule 599);
a) a court order signed by the Registrar of the District Court under seal
b) a memorandum of satisfaction signed by the chargeholder and witnessed in terms
of Section 157 of the Land Transfer Act 1952 or
c) a discharge signed by the chargeholder and witnessed in terms of Section 157 of
the Land Transfer Act 1952.
No fee is payable for the discharge or satisfaction (Section 96A(6) & (7) District
Courts Act 1947).
Please note; the District Court has no power to enforce a charging order absolute by
ordering a sale. To effect a sale the charging order must first be removed to the High

Court, which has the appropriate jurisdiction (Rule 60.

it seems there are 2 types Absolute & Nisi


j';harging Order Nisi( Rule 601)

These charging orders prevent registration of any conveyance, transfer, assignment
or disposition of any estate or interest (Rule 603(a)) and do not automatically lapse.
However these charging orders do not prevent registration of caveats, notices of

claim, rating charges or another charging order or court order.

Charging Orders Nisi are in the nature of interim orders to preserve the property (Rule
603) and to prevent it being parted with or sold. If substantiated as a valid claim by
proceedings in the District Court a Charging Order Nisi may be made absolute (Rule
606).
The principal reason for having a Charging Order Nisi made absolute is to
enable it to be enforced in the High Court if the land is sold (Rule 60. If a Charging
Order Nisi is not made absolute it should be rescinded on the application to the

District Court by the registered proprietor (Rule 287).

[virgil]

once again thanks

[Keithw]

Check the date on it- it may be one of the ones that expires after 2 years !!!

[virgil]

it was lodged in the Pukekohe District Court Feb this year

[Keithw]

Wow, just following up on Xavs thread it appears that a leaky building up for mortgagee sale that has a charging order on it, where the bank may have been forced into covering leaky levies, may give priority to leaky building levies IN FRONT of the first mortgage !
Assuming the leaky building levies were classed as repair costs !
Section 185 of property law act

these amounts are first in line

subsection 2) The amounts are amounts reasonably paid or advanced at any time by the mortgagee—

• (a) for the protection, insurance, maintenance, preservation, or repair of the mortgaged property; or

• (b) for the payment of rates or other outgoings; or

• (c) to meet the expenses of the mortgagee in entering into possession, or in doing anything that a mortgagee in possession is required or entitled to do; or

• (d) with a view to the realisation of the security (including any additional amount referred to in section 120(2) or 129(2)).

this is the line order


1) The proceeds arising from the sale by a mortgagee of mortgaged property must be applied—

• (a) first, to the payment of all amounts (if any) referred to in subsection (2), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage:

• (b) secondly, to the payment of amounts secured by any other mortgage, encumbrance, or security interest over the property to the extent that it has priority over the mortgagee’s mortgage:

• (c) thirdly, to the repayment of all amounts (if any) paid or advanced by the mortgagee for the purpose referred to in paragraph (b), together with interest on those amounts at the agreed rate (if any) at which interest is payable on the principal amount secured by the mortgage:

• (d) fourthly, to the payment of amounts secured by the mortgage (to the extent that those amounts have not been paid under paragraphs (a) to (c)):

• (e) fifthly, to the payment of amounts secured by any subsequent mortgage, subsequent encumbrance, or subsequent security interest over the property if—
  • (i) the subsequent mortgage, subsequent encumbrance, or subsequent security interest is registered; or
  • (ii) the subsequent mortgage, subsequent encumbrance, or subsequent security interest is unregistered, but the mortgagee has actual notice of it:

• (f) sixthly, to the payment of any surplus to the current mortgagor.

[graemeh]

Not sure where you get that from.

Isn't the mortgagee the lender? It looks to me like the payments for repairs only applies to money the mortgagee/lender has paid and not anyone else.

[virgil]

thanks for replying. doesnt apply in my case. the property in question is a vacant section

[Keithw]

Yes,Graeham I re-read & adjusted my post.
However if the Body corp or anyone else manages to corner the bank into paying to have the leaky repairs done, this amount is considered paid off before any notional "First Mortgage" is paid off.

look at it like this
Bank lends 200k on a first mortgage for apartment say 250k
Leaky repairs have or are going to cost $100 k
property drops in value to 150k (prior to repairs)
goes to mortgagee sale
in order for the bank to have chance of recouping value it agrees or is forced to stump up with the 100k repair cost

property sells for 200k (after repairs) (not a good investment for the extra 100k )

the first 100k repaid is considered repair cost - this is the important bit.
last 100k goes to pay of part of the mortgage
owner left with 100k mortgage as opposed to 100k repair cost

still 100k either way but the different classification may be significant as far as depreciation, repair expenses claimable , loss on sale(if a trader)etc
and the seller was forced to accept the repair cost rather than perhaps have been able to right-off the building - that may be stretching the point, but I think the different classification definitely needs to be thought through.

[Xav]

graemeh is correct. That is money the mortgagee has expended. The effect of that section is simply to make sure that the mortgagee can recover money it spends on maintenance etc in addition to its priority amount.

Keithw, once the bank has spent that money then it is added to the mortgage, just like any sale costs etc. It isn't really useful to differentiate between the amount originally owed and amounts added after. It is all debt to the bank. I cannot think of a situation where the mortgagee would be forced to pay repair costs.

Virgil, provided that the charging order is on the title after the mortgage then it will disappear when the mortgagee transfers the property to you. The only exceptions (afaik) are a caveat securing an equitable interest which predates the mortgage and a Legal Aid caveat.

[Keithw]

I cannot think of a situation where the mortgagee would be forced to pay repair costs.

Section 48 Scheme under UTA binds both owners and lenders to the requirements of the Scheme.
Owner cant front up with money eg 100k for the repairs.
Can the bank be forced into fronting up with it ?
or the bank paying for the repairs is the most practical way for them to be able to proceed with a sale, ie cajoled as opposed to forced