Personal Guarantee query

[CYNthesys]

What purpose does a personal guarantee serve if a legal charge has been executed to secure the borrowings?

[CYNthesys]

Re: Personal Guarantee query

BUMP

60+ views and no replies?

Im trying to find out if a legal charge can be enforced after the guarantee it supports ceases to act as a continuing guarantee.

[stevokenevo]

Re: Personal Guarantee query

to try and make it a bit clearer, are you saying a legal charge has been placed on an asset or assets, of which the financial agreement to pay for them is covered by a personal guarantee?

and is this charge to prevent the sale of the asset?

[CYNthesys]

Re: Personal Guarantee query

A personal guarantee was given as security for 3rd party borrowings.
The Guarantor executed a legal charge to support that guarantee
The Guarantor lost mental capacity.
In law a guarantee ceases to be a continuing guarantee on the Guarantor's incapacity.
As the guarantee ceased to be operative I am trying to get my head round how the legal charge could be validly/lawfully enforced after the instrument it supported could not be acted on.
If that makes sense?

[stevokenevo]

Re: Personal Guarantee query

i understand what you are saying, but the scenario does not make sense.

i would imagine the charge could not be enforced going with what you have said.

I have had dealings with personal guarantees in the not to distant past.

I would suggest a chat with a business lawyer may help, unless Cet can shed any light

[CYNthesys]

Re: Personal Guarantee query

The Court said that the guarantee played little or no part in these proceedings and the mental incapacity of the guarantor did not prevent the legal charge from being enforced without a court order.
Doesnt make sense to me

[Garlok]

Re: Personal Guarantee query

Hello Cynth,

These personal guarantees are one those little minefields set for us that we all seem to stumble into.

I think even lenders and their legal people don't understand it in full either. We had one on a business loan and OD which became the subject in the end of a F & F. This guarantee raised its head in the negotiations and letters. However the bank's business managers had themselves stated that the these guarantees are irrelevant and become void if they are not renewed on a yearly basis, ours was about 4 years out of date.

Yet when the end came in sight they wanted to ressurrect it. Not a chance once the F 7 F had gone through via sols.
However as to your comments above I can only assume the court took the view that they were taking the state of mind of the guarantor into consideration at the time of signature. Not at the present time. That is wrong in my view and probably open to challenge as their are very serious consequences for anyine infringing the jurisdiction of the Court of Protection which comes into play under the Mental Health Act if the adult becomes by definition "vulnerable".

Might be worth taking a look to if any of this applies in your case.

regards
Garlok

[CYNthesys]

Re: Personal Guarantee query

The Guarantor was a patient as defined by s1 MHA 1983.
The lender was made aware that the guarantor could only act through a Court of Protection receiver, but it didnt bother making an application. It cut out the middleman, just helped itself, and appointed Law of Property Act Receivers to take posession and dispose of the patients property.

The Court insisted that as the legal charge required payment on demand, payment on demand should have been made.
It didnt take into account the fact that a person lacking capacity is unable to deal with such.

[Garlok]

Re: Personal Guarantee query

This is appalling behaviour on the part of both the creditor and the court. If it were me I would seek the advice of a good Family Law Solicitor. The guarantor in his/her condition would be a good qualifier for legal aid and application to the Court of Protection for redress may be in order.

May I ask whether a lasting power of attorney is in place? By the way there are now two, one for financial matters and one for health and welfare matters. its a pretty complex subject now. If there is no power of attorney and under the MHA it is unlikely there could be one now, then it may be possible to get the person concerned under the jurisdiction of the Public Guardian.

Also please note that if the person has ever been sectioned under section 3 of the MHA then under section 117 of the said act, the local social services are legally responsible for ANY AND ALL after care required for the remainder of that person's life. They will wriggle and argue, but will not face or risk a determined onslaught under these conditions.

Hope that this helps a bit.
Regards
Garlok

[Garlok]

Re: Personal Guarantee query

Sorry Cynth, I also forgot to ask who defended the guarantor in court? Did he/she have a defence? We are all entitled to defend ourselves or be defended by professionals in any action in any court. It is a founding principle in British Law and the judge was clearly wrong if he/she allowed no defence to be prepared.

regards
Garlok

[CYNthesys]

Re: Personal Guarantee query

Guarantor now deceased. I brought a claim as his personal rep. acting as a LIP

When Bank appointed Law of Property Act Receivers there wasnt an Enduring Power of Attorney in place, hence I advised Bank that he could only act by a Court of Protection Receiver.
The Law of Property Act Receivers disposed of his property for a pittance whilst he was detained in hospital under a section 3 MHA 1983. He didnt have anyone validly appointed to protect/preserve his interests. There wasn't a court hearing as it was a commercial property and the Bank and receivers just helped themselves, despite it being a common law principal that no-one may manage the property and affairs of someone else who has lost capacity.

Going back to my original question - I cant see how a legal charge that had been given to support a personal guarantee can be legally enforced without court consent, when the guarantee it was supporting had ceased to act as a continuing guarantee.

Legal Aid was repeatedly refused simply because the 3rd party was a business and the changes in Public Funding meant that any matter that originated from any business matter became an excluded service.

During his lifetime Court of Protection initially agreed to act as his litigation friend, but it revoked its decision to act at the last minute due to funding concerns. (The Bank had wiped out his estate, and his family was existing on State Retirement Pension)

[Garlok]

Re: Personal Guarantee query

This is dreadful. Perhaps others can now see why I get so irate when they spout the morality issue over banks. There is no more amoral crowd in this world than banks.

Like you I have had a look at things and I cannot see where this is correct in law. Its is just banditry of the worst kind. Without funding its going to be a problem but have you considered talking to your /his MP on this and then say Panorama and/or the press?

Nothing can be libellous as the court made a decision and it is a matter of record.

regards
Garlok

[killerschick]

Re: Personal Guarantee query

This brings to mind the case of Horsham Properties Group Limited v Paul James Clark and Carol Ann Beech (2008) EWHC 2327. In this case Clark and Beech were the proprietors of the property which they mortgaged with GMAC. The mortgage feel into arrears and GMAC appointed receivers to deal with the property, the receivers sold the property to Coastal Estates Ltd who sold it on the same day to Horsham who then proceeded to evict Clark and Beech as trespassers. Clark and Beech sought to have s101 of the Law of Property Act (LPA) declared incompatible with the Human Rights Act - they were unsuccessful. The court found that the receivers had sold the property in exercise of the mortgagees conractual rights rather than statutory rights under the LPA but even if they had been selling using the LPA rights it still would have ben compatible with the Human Rights Act. This is s101 of the LPA was found only to implement the private bargain between the parties rather than to represent state intervention.

In this case the mortgagee claimed to be unaware that the owners were in occupation as the mortgage was taken out on a buy to let basis (you can't help but suspect a dodgy broker being involved there somewhere!) but it established that it is legal for a mortgagee to sell a property out from under an owner without taking possession proceedings. This is how you end up with the legal charge being enforced without a court order.

The Horsham case raised an important public policy issue, there are various safeguards for owner occupiers to ensure they are given every opportunity to save their home when faced with repossession which can be completely overridden by the use of receivers. A private members bill is currently making it's way through parliament to tackle this issue but it's making very slow progress (second reading due in September...I think) and there are some provisions in it which are likely to impede it's progress as they are pretty unworkable. It wouldn't have helped Cynth's relative anyway as from Cynth's posts I gather it was a commercial property.

I'm afraid I don't know much about the law surrounding personal guarantees but when it comes to land law if the charge was given when the person had capacity it would not be extinguished if they later lost that capacity. Can you imagine what would happen if a mortgage became unenforceable if someone lost capacity? No mortgages would be granted to anyone with any history of mental illness, anyone with a family history of mental illness, anyone over a certain age, anyone with a family history of alzheimers etc etc which would be a pretty undesirable state of affairs from a public policy perspective.

Hope this is useful.

KC

[CYNthesys]

Re: Personal Guarantee query

Ive never suggested that a charge would be extinguished if the owner lost mental capacity.

In this case there were no arrears whatsoever. When the then manager Neil Hopkinson was put on notice that the owner had lost mental capacity the Bank foreclosed.

What Ive argued is that if such a guarantor loses mental capacity, the guarantee ceases to act as a continuing guarantee, and any debts due at the date of his incapacity vest in his estate and can only be dealt with by order of the Court of Protection.

There is a procedure that is required to be followed in cases such as this, but the Bank simply ignored this and relied on the terms of the legal charge that had been given to support the guarantee.

[sho718]

Re: Personal Guarantee query

Hi Cyn,

YB will have taken an all monies mortgage over the property - that means the property was directly charged to cover the debt as well as supporting the guarantee.

This means that they retain the right under the mortgage to repossess the property on default even in the case of mental incapacity.

PM me if you want any further details or info on NH
regards
sh