Private landlord Charles Lancaster has had a property business once valued at £6 million snatched away by a building society under a little-known clause written in to most buy to let mortgages.
Lancaster, 87, of Bradford, West Yorkshire, once had a portfolio of 42 letting properties, but they were taken over by a receiver acting for the lender after he slipped in to financial problems.
He has tried to buy back his portfolio without success – the properties are now valued at around £2 million by the lender, the Nationwide.
The power to appoint a LPA receiver is included in most landlord mortgage agreements.
‘LPA’ is short for Law of Property and comes from the Law of Property Act 1925.
The act allows a lender with a charge over a buy to let property to appoint a receiver to run the property business should the borrower fall in to mortgage arrears.
One critic of the law is George Eustice MP, who once worked as Prime Minister David Cameron’s press secretary.
“These appointments do not require any recourse to the courts. They are also unregulated and do not constitute part of the formal insolvency process,” he said.
The LPA receiver effectively acts in the same way as an administrator for a business in liquidation.
The receiver takes over the rental property and collects the rents for the lender, while arranging a sale to repay the mortgage debt.
The receiver is not an insolvency practitioner like a business receiver, and may have restricted powers written in to a mortgage deed.
For landlords who cannot afford to pay their investment mortgages who have tenants in rent arrears, the danger is an LPA receivership can be triggered by as little as three months unpaid rent.
Many lenders will work with landlords rather than appoint an LPA receiver straight away, but private landlords should consider starting eviction proceedings as soon as possible to regain their properties – or look at rent guarantee insurance that pays out to cover the rent during the eviction process.
