Who Pays Legal Fees in a Forced House Sale?

Falling into mortgage arrears is one of the main reasons for forced house sales.  Lenders can initiate repossession proceedings, if you (as a borrower) fail to make your mortgage payments.

A forced sale of the property through the courts is the lender’s ultimate attempt to recover the outstanding mortgage balance and other debts.

Depending on the mortgage contract, the lender may also demand that you (as the borrower) cover their legal and court fees (in addition to your own). The lender will usually add these to the total amount of mortgage debt.

Negative equity is where the outstanding mortgage is higher than what the property is worth. This can happen when there has not been strong price growth and/or when the mortgage is interest only (and the principal loan amount is not repaid every month).

In such circumstances, the lender will reserve the right to claim back the balance owed. For example, say you owe £90,000 on the mortgage (including penalties, early redemption fees etc.) but the property is worth £80,000 – you will effectively owe the lender £10,000.

Should the lender repossess, they will typically sell the property through an auctioneer or using an estate agent. If they only achieve £80,000, they will come after the remainder £10,000 debt. On top, they will quite often charge penalties and legal costs.

It’s worth noting that lenders have legal obligations governed by the Financial Conduct Authority (FCA) that regulates residential mortgages. There are also ‘pre-action protocol’ rules that state that they should treat you fairly, discuss your financial situation and give you a reasonable timeframe to pay off any arrears

Furthermore, the Mortgage Charter gives mortgage borrowers a grace period of one year to remain in their homes after missing a payment for the first time.

When an individual is declared bankrupt, their assets – which include property they own – can be liquidated to settle debts owed to creditors under a county court charging order.

A bankruptcy trustee may initiate the forced sale of a property to generate funds. This happens when the property has a large amount of equity or there is no protection under bankruptcy exemptions.  This, in turn, leaves the homeowner with little choice but to comply with the involuntary sale.

Here there will be various legal and administrative fees to pay solicitors, administrators and insolvency practitioners.  In most cases, these will be deducted from the proceeds of sale.

When couples go through divorce or separation, the division of marital assets often includes the family home.

If both parties cannot agree on how to handle the property, the court may order the house to be sold. The proceeds from the sale are then typically divided between the parties based on the terms of the divorce settlement or legal ruling.

The settlement or court order will also determine who will be responsible for conveyancing and other associated legal fees. These are usually divided (equally or proportionately) between the (ex) couple or one partner would be held fully liable.

Regardless of who is responsible, in most cases, the fees are deducted from the proceeds of sale.

Shared ownership of a property (through a joint investment or with another sibling, for instance) can become contentious if the co-owners have conflicting goals or priorities. The most common example is where one owner wants to sell and the other doesn’t.

If negotiations fail, one party can seek a legal remedy, such as mediation or filing a partition action in court. The court may then order a forced sale, allowing the proceeds to be divided among the co-owners based on their ownership shares.

In most cases, the legal fees to solicitors (or barristers in more complex cases) will be paid individually by each party and the court fees will be split equally. However, there may be a separate agreement where responsibility for such fees between partners is specifically delineated.

Should a property constitute a minority or majority part of an estate, secured debtors – such as mortgage companies – may force the sale in order to recover money owed.

Much will depend on the terms and conditions of the original contract(s).  However, the beneficiaries or heirs are usually held responsible for any associated costs. There may also be extra legal fees if there is no Will in place (also known as intestacy).

In such scenarios, the fees are paid out from the value of the property upon sale and whatever (pre-tax) remaining funds are divided amongst the estate’s beneficiaries.

Where the local authority (council) forces the sale of the property – typically to advance infrastructure projects – the homeowner will receive a fair market value for the property.

Understandably, the local government will cover all legal (including conveyancing) fees involved with a CPO. Many forced sellers in such situations also seek further compensation due to the practical complications that often arise.

A claim is formally made to the court accompanied by detailed evidence as to why such action is being taken.

This can include proof of mortgage arrears, other unpaid (secured) debts or fees, statements, communication (email, letter, text and WhatsApp messages), contracts, agreements and anything else deemed relevant.

The court then forwards legal documents to all the parties involved, typically by post. This provides the opportunity for the parties involved to respond and/or seek legal advice, mediation or an out of court settlement.

A judge will examine the evidence provided and determine whether to grant the forced house sale or not. All parties will have the opportunity to present their respective cases (with or without a solicitor).

Some of the common court orders include:

• The forced house sale is rejected as the amount of equity within the property is too low or one party is unfairly disadvantaged
• The sale is denied but the judge applies specific restructions such as a regulated occupancy (for a set or indefinite time period)
• A delayed forced sale – such as when it’s the family home or dependent children are involved
• A partition order where the property is divided between the interested parties proportionally.

If the court fully approves the order for a forced house sale, the property will then be sold at auction or through an estate agent (private treaty). Auctions are often the quickest way to sell due to buyers having a legal commitment to complete once the hammer falls.

The judge will also confirm how secured creditors will be paid once the house sale is complete and how any settlements between partners will be dealt with.

The judge will also explicitly confirm what legal fees will be paid and by who. This may be the homeowner, the creditor, defendant or joint venture partner or the collective/proportional responsibility of all parties involved in the case.

In most cases, the fees involved in a forced house sale are paid from the proceeds of sale via auction or on the open market.

A breakdown of the fees confirmed by the court judgment will be forwarded via post to all the parties.

The court may order a formal RICS (Royal Institute of Chartered Surveyors) valuation.  Other times, a price estimate through the auction house or estate agency is sufficient.

The receiver or administrator will manage the sale in line with the court judgment.

The proceeds resulting from the forced sale will be paid in a specific order. Typically, priority belongs to the first and second charge creditors (and any associated costs).

Should the case involve a dispute between jointly owned property, the funds will be distributed according to the court order – deducting any legal and associated fees.