Payment of Creditors

I am dealing with an estate where there are a number of properties, which are being rented.

The deceased died unexpectedly in November last year and it has been extremely difficult ascertaining details of all of the assets and liabilities. We do not yet have the GoP but I am hoping to be applying soon.

Each of the properties has a mortgage (with different providers) and at least one has a second charge,

The rent has been paid to us since the deceased passed away and is intended to be used for the payment of Inheritance Tax, which needs to be paid.

There is little by way of liquid assets.

One the mortgage companies (which has a charge again four of the seven properties) has appointed a receiver to collect the rents to offset against the arrears of mortgage that have accumulated since the deceased passed away.

My view has been that I cannot make payments to this mortgage company in priority to the other creditors of the estate (particularly given that one of those is HMRC!) and that, once the GoP has been issued, we will look to redeem the mortgage as soon as possible.

The receiver is recommending to the lender that they seek vacant possession and repossess the properties. I am trying to persuade them otherwise. My question is, should I be making payments to the lender to try to stop them repossession the properties, or are my hands tied?

Any guidance would be greatly appreciated.

Martyn Dixon
Harold Bell & Co.

On the basis that the estate is solvent, there should be no risk of payments to the mortgage company in question being an illegal preference.

However, if the mortgage company follows the receiver’s recommendation and looks to sell the properties (4 out of 7 is a high proportion), this could significantly reduce the value of the estate – the receiver’s fees for dealing with matters will be substantially higher than an estate agent’s for dealing with a sale and, if the properties are put to auction, the price realised may be below the executor’s expectations.

If you are satisfied as to the solvency of the estate, I would be inclined to make payments to regularise the situation and prevent potential loss to the estate, bringing the properties (and rent receipts) back under the executor’s control. Even though the rents are not currently received by the estate, the executor will still be required to account to HMRC for them as estate income.

If the income of the estate is insufficient to fund the mortgage payments, is the mortgage company open to dialogue, to try and persuade it to hold back from taking further action? They can be quite helpful when the circumstances are explained, as there are mutual benefits from working together, although some completely lose interest in any form of discussion once they have instructed receivers.

Paul Saunders