There are so many more parties involved in the bridging process than simply a lender, customer and intermediary. Whether it’s facilitating originations, enabling completions, or supporting collections and recovery, there are many businesses that ensure our industry is able to function effectively and, at the ASTL, we make it our business to understand and educate about the role of those businesses and why they are important.

One question that arose recently was, do we really understand what receivers do? The role of a receiver has actually been around in one way or another for hundreds of years, but it’s one area of the process that I believe is still open to misunderstanding.

The definition of a receiver states that it’s a person appointed by the holder of a fixed charge to enforce its security, but what does that mean in practice, and how does the appointment of a receiver fit within the standard legal enforcement process?

In order to help answer some of these questions, we spoke to the team at Sanderson Weatherall, who are associate members of the ASTL. One of the themes that became immediately apparent is that, in bridging, we work in a complex industry. Cases are rarely straight-forward and so, when things go wrong, the solution is seldom immediately apparent. With this in mind, one of the first things a receiver will do to facilitate recovery is to get on the ground (metaphorically) to uncover some of the detail that may not have been immediately apparent to a lender during the underwriting process and, in uncovering this detail, the route out of the situation usually becomes much clearer.

Daniel Hardy, a Partner at Sanderson Weatherall, describes two case studies which explain this dynamic in practise.

Long leasehold flat

A first charge holder relied on valuation arranged by the borrower, and advanced staged payments of a short-term loan on the assumption that the borrower would fully refurbish the flat and extend the leasehold interest so as to enhance its mortgagabilty prior to sale. The deposit was borrowed from a third party who took a second charge. The flat was refurbished to a high standard, but the borrower was unable to secure a sale sufficient to cover the first charge debt. The borrower’s expectations of value were exacerbated by unrealistic agents’ advice on value. 

Default interest was accruing with no prospect of a full recovery; consequently, any recovery would lead to a complete loss for the second charge holder. The first charge holders appointed receivers who collected rent from the short-term tenancy and reached agreement with the freeholder to extend the lease; the receivers resolved a party wall dispute and achieved a sale through private treaty having liaised via the lawyers to get a consensual release of the second charge to avoid a TR2 overreach process which would involve directly the first charge holder.

Freehold industrial site with potential for residential development

The site was owned jointly by the borrower and an elderly relative. The adjoining site was owned by the same relative and provided the visibility splay necessary to enable residential development of the site at some future date. One of the borrowers was in occupation of the security under an informal arrangement. The borrower asked the receivers to postpone the realisation to enable them to procure consent for residential development. The receivers were not keen to take possession of the site due to its hazardous condition, allied to potential adverse publicity that might be directed towards the appointor. Despite granting an extended timeframe for the borrower to achieve a suitable planning consent the borrower failed in their efforts. The property was sold at auction. As it transpired the buyer was the original borrower who was successful at auction against other bidders. In this specific set of circumstances, no contract for sale was required as the price achieved in the room was accepted by the receiver and vendor as the best price achievable. It was therefore treated as a redemption. Rather unusually the borrower offered at auction sufficient to allow a full redemption but at the time of the auction process was not actually in a position to pay the monies over to avoid the auction process. As a consequence, despite the higher bid only the redemption settlement sum was taken to cover full repayment of the loan to include all costs and fees. This was and is a very unusual set of circumstances.

In the bridging market, very few lenders deal in the straightforward. Cases are often complex, with layers of intricacy and detail. Often this detail is picked up in the underwriting process, but sometimes it is missed and – when it comes to recovering a debt – this detail can be the difference between success and failure. It’s a receiver’s job to uncover this detail and find the best way forward for all parties involved.

Vic Jannels, CEO of the ASTL
A version of this article appeared in the March digital edition of Mortgage Introducer