Loss of property rights in the home - Repossession

Question 1

Four-Maids Ltd v Dudley Marshall

Answer 1

A dispute arose over a lease agreement. Four-Maids Ltd leased a property to Dudley Marshall Properties Ltd, who then defaulted on rent payments.

Question 2

Four-Maids Ltd v Dudley Marshall Properties Judgement

Answer 2

Held, the mortgagee was entitled to an order for possession; there would be such an order, but its operation would be postponed for two months

Question 3

Cheltenham & Gloucester Building Society v Norgan

Answer 3

• Mrs Norgan borrowed £90,000 from Cheltenham & Gloucester Building Society secured
  against her house.
• Under the terms of the agreement, Mrs Norgan was to repay the loan in monthly instalments over a period of 21 years.
  It was a standard term of the contract that if any instalment was
  not paid, Cheltenham & Gloucester would be entitled to possession of the property.
  Mrs Norgan fell into arrears and Cheltenham & Gloucester sought a possession order

Question 4

Cheltenham & Gloucester Building Society v Norgan judgement

Answer 4

• The first instance judge held that four years was a ‘reasonable period’ within which to repay the arrears. On the basis that there was no evidence that Mrs Norgan could settle the
  outstanding arrears within that period, the judge held that the possession order should be executed.
  Mrs Norgan appealed.
• The Court of Appeal allowed the appeal, with Waite LJ giving judgement

Question 5

Waite LJ in Cheltenham & Gloucester

Answer 5

‘The court should take as its starting point the full term of the mortgage and pose at the outset the question: would it be possible for the mortgagor to maintain payment off of the arrears by instalments over that period?’

Question 6

Ropaigealach v Barclays Bank

Answer 6

• The freehold owner discovered from a neighbour that his house (in which he was not living at the time) had been sold by the mortgagee.
• The court held that this was a legitimate exercise of the bank’s common law right to take possession by peaceable entry without seeking a possession order.
• BUT see Protection from Eviction Act 1977 s.1 and Criminal Law Act 1977 s.6 – criminal penalties
• If anyone living at the property, mortgagee should seek a court order for possession

Question 7

Ropaigealach v Barclays Bank judgement

Answer 7

The Court of Appeal refused to grant the Ropaigealachs the declaration sought and, in construing s. 36 in a literal manner, held that the provision only applied where a mortgagee had
brought possession proceedings

Question 8

Bank of Scotland v Zinda

Answer 8

• The case revolved around Mr. Zinda, who had fallen into mortgage arrears and a possession order was granted, but suspended, allowing him to pay off the arrears.
• Later, the Bank of Scotland consolidated the arrears with the outstanding loan balance, but Mr. Zinda fell into further arrears and applied to suspend enforcement of the original possession order

Question 9

Bank of Scotland v Zinda judgement

Answer 9

The Court of Appeal ruled that the Bank of Scotland could enforce the original possession order, as the initial arrears-related cause for the order was not extinguished, even though the arrears were later consolidated or cleared, and the arrears were not addressed within a reasonable period

Question 10

Purpose of Bank of Scotland v Zinda

Answer 10

If borrower breaches the terms of a suspended possession order, the possession order is executable without a further court hearing

Question 11

Palk v Mortgage Service Fund plc facts

Answer 11

• The mortgagor owed £358,000 and wished to sell the mortgaged property to reduce this
  indebtedness. The mortgagor had negotiated a sale of the property at £283,000. The mortgagee
  refused to consent to the sale and wished to lease the property and wait for an increase in house
  prices
• In the circumstances, was the mortgagor entitled to an order for sale under s. 91 of the
  LPA 1925 against the express wishes of the mortgagee?

Question 12

Palk v Mortgage Service Fund plc judgement

Answer 12

• The Court of Appeal held that it had an ‘unfettered discretion’ under s. 91 and an order for sale was made.
• The fact that the mortgagee was not in breach of any of its duties was just one factor to be taken into account.
• To order sale was just and equitable as otherwise unfairness and injustice
  would follow in view of the prospect of the mortgagor’s increasing indebtedness.

Question 13

Relevant considerations in Cheltenham & Gloucester

Answer 13

• How much can borrower reasonably afford to pay, now and in future
• How long are temporary difficulties likely to last?
• What is the reason for the arrears?
• How much remains of original term?
• What re the relevant contractual term and what type of mortgage is it (ie when is the principal debt due to be repaid)?
• Should the court exercise its power to disregard accelerated payment provisions under s.8 of AJA 1973?
• Is it reasonable to expend the lender to recoup the arrears of interest over the whole of the original term/within a shorter period or even a longer period (eg extend the repayment period? Should the interest be capitalised (eg added to the principal debt)?
• Are there any reasons affecting the security which should influence the length of the period for repayment?

Question 14

S. 36 Administration of Justice Act 1970 (as amended by AJA 1973)

Answer 14

Allows for a reasonable period of time for the mortgagor to gather the funds to pay off the debt to the mortgagee

Question 15

What is a mortgage?

Answer 15

A secured debt - secured on the borrower’s land. Both a contract between borrower and lender (mortgagor and mortgagee) and a proprietary interest for the lender in the borrower’s land

Question 16

What happens to the mortgage when the debt is repaid?

Answer 16

When the debt is repaid, usually by instalments over 25 years, title to the land is no longer affected

Question 17

What happens to the mortgage is the debt is not repaid, or the borrower defaults on some instalments?

Answer 17

The mortgagee may take possession of the property and sell it to recoup the money owning to them

Question 18

What does the mortgagee have if they take possession of the property?

Answer 18

It has priority over the interest of the borrower and can look to its own interest, but must act fairly towards the borrower

Question 19

What legislation and section is concerned with the effect of registration of mortgage?

Answer 19

S.29 LRA 2002

Question 20

What is the importance of this legislation?

Answer 20

S.29 LRA 2002
Has the effect of postponing to the mortgage any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration

Question 21

What is protected and by what legislation?

Answer 21

Sch. 3, para. 2, LRA 2002
The overriding interest of a person in actual occupation is protected, but only if that person has a proprietary interest in the land

Question 22

What else does a mortgagee enter? What legislation supports this?

Answer 22

A restriction, which requires their consent to disposition of the land during lifetime of the mortgage
S.40 LRA 2002

Question 23

What happens if the mortgage isn’t registered

Answer 23

the mortgage can only take effect in equity, not at law

Question 24

What legislation requires the mortgage to be registered?

Answer 24

S.27 LRA 2002

Question 25

What court issues claim for possession?

Answer 25

County court

Question 26

What does the judge decide?

Answer 26

Whether to adjourn (usually for more evidence to be obtained), grant or refuse the claim for possession

Question 27

What happens if the judge makes a court order for possession?

Answer 27

this may be suspended while ever the defendant complies with conditions set by the court

Question 28

What happens if the judge makes an outright order for possession?

Answer 28

The claimant can apply for a warrant to execute the judgement

Question 29

What legislation allows for restrictions on what the mortgagee can do?

Answer 29

S.36 Administration of justice Act 1970 (amended by AJA 1973)

Question 30

S.36 Administration of justice Act 1970 (amended by AJA 1973)

Answer 30

‘if the mortgage is charged on a dwelling-house, the court may adjourn the case, or stay or suspend execution of the judgment, or postpone possession for such periods as the court believes reasonable if it appears to the court that… the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage…

Question 31

What does s.36 do?

Answer 31

Gives courts the discretion to delay or suspend possession if the borrower can pay the arrears within a reasonable period

Question 32

What does the reference to a dwelling-house do?

Answer 32

protects residential borrowers but includes a mixed use property (eg property comprising a nightclub and flat above

Question 33

Does the occupier matter?

Answer 33

No, the occupier need not be the mortgagee

Question 34

What case references the 'reasonable period'?

Answer 34

Cheltenham & Gloucester Building Society v Norgan

Question 35

What was the vital judgement in Cheltenham & Gloucester?

Answer 35

The Court of Appeal held that "reasonable period" under s.36 could be the whole remaining mortgage term, not just a few months. Calculating a ‘reasonable period’ starts (but may not end) with the whole remaining term of the mortgage

Question 36

What must income be to be allowed the reasonable period under s.36?

Answer 36

A temporary difficulty

Question 37

What should the courts consider?

Answer 37

Court should consider social and economic issues to decide what is ‘just’ in each case.

Question 38

What paragraphs are considered in Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan?

Answer 38

Paragraphs 3.1 and 7.1

Question 39

Para. 3.1 in Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan

Answer 39

The aims of this Protocol are to– - (a) ensure that the lender and borrower act fairly and reasonably with each other in resolving any matter concerning mortgage arrears; - (b) encourage greater pre-action contact between the lender and the borrower in order to seek agreement between the parties; and - (c) encourage lenders to check who is in occupation of the property before issuing proceedings.

Question 40

Para. 7.1 in Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan

Answer 40

Starting a possession claim should be a last resort and must not normally be started unless all other reasonable attempts to resolve the situation have failed. The parties should consider whether, given the individual circumstances of the borrower and the form of the agreement, it is reasonable and appropriate to do one or more of the following– → (a) extend the term of the mortgage; → (b) change the type of mortgage; → (c) defer payment of interest due under the mortgage; → (d) capitalise the arrears;

Question 41

What does Arrears in Respect of Residential Property refer to?

Answer 41

Unpaid rent or mortgage payments owed by the tenant or homeowner

Question 42

Planning and Compulsory Purchase Act 2004

Answer 42

It reforms the planning system and provides powers for compulsory acquisition of land.

Question 43

What does the Protection from Eviction Act 1977 s.1 do?

Answer 43

Makes it a criminal offense to unlawfully deprive a residential occupier of their premises, interfere with their peace or comfort, or withhold essential services

Question 44

What does the Criminal Law Act 1977 s.6 do?

Answer 44

Prohibits using or threatening violence to secure entry to premises

Question 45

What will the the court expect a mortgagee to have followed before seeking possession? (Pre-Action Protocol for Possession Claims)

Answer 45

providing key information to the mortgagor; considering rescheduling of the debt; accepting/ giving reasons for refusing reasonable requests for a new payment plan; and seeking fair, open discussions as to settling the default out of court.

Question 46

When would the mortgagee seek possession of the mortgaged property?

Answer 46

- When the mortgagor defaults - Satisfy the debt - Generate income to discharge the mortgagor's obligations

Question 47

What equitable duty is the mortgagee under if they take possession?

Answer 47

To account for all income recieved that would be generated from the land. Will be held to the standard of reasonableness

Question 48

What legislation allows for mortgagees to be entitled to immediate possession of mortgaged property?

Answer 48

s.87(1) LPA 1925

Question 49

What is possession subject to?

Answer 49

The express terms of the mortgage

Question 50

How will a mortgagee seek possession?

Answer 50

Applying for an order for possession from the court

Question 51

What does the court enjoy?

Answer 51

Inherent jurisdiction to grant temporary relief to a mortgagor by allowing them a short time to gather the funds to pay off the debt

Question 52

What does s.36 AJA 1970 not allow?

Answer 52

For the court to restrict possession and rights of the mortgagee, only permits the court to either adjourn possession proceedings or postpone them

Question 53

Loophold in Horsham Properties Ltd v Clark

Answer 53

When a mortgagee exercises a power of sale over a mortgaged property without itself first seeking a court order for possessions, the sale overreaches the borrower's equity of redemption, and s.36 does not apply.

Question 54

Horsham Properties Ltd v Clark facts

Answer 54

Mortgage repayments were missed, the mortgagee therefore appointed receivers who sold the land but the mortgagor remained in possession. HP argued that the sale had overreached the mortgagor's equitable rights

Question 55

When else does s.36 apply?

Answer 55

Where a mortgagee seeks possession by initiating proceedings where there is no default on the part of the mortgagor

Question 56

What happens when proceedings for possession are issued by the mortgagee?

Answer 56

The mortgagor may wish to rely on s.36 and must make an application for relief under the provision

Question 57

What is the mortgagee obliged to send?

Answer 57

A notice of the proceedings to the mortgaged property so that any affected parties are made aware of the action and could initiate a s.36 application

Question 58

What is a 'dwelling house' and why is it important?

Answer 58

'Dwelling-house' includes premises where only part of the land is used as a dwelling. s.36 only applies to possession proceedings concerning mortgages that consist of or include a 'dwelling house'

Question 59

What does 'any sums due' mean and why is it important?

Answer 59

s.36 gives the court the power to adjourn possession proceedings or postpone the possession order where there is evidence that, within a reasonable period, the mortgagor will be able to pay 'any sums' under the mortgage. Covers the arrears and not the totality of the capital debt

Question 60

What does the 'reasonable period' mean and why is it important?

Answer 60

'Reasonable period' required a detailed analysis of the mortgagor's budgets and a discussion of future financial protections

Question 61

What other power does the court have under s.36?

Answer 61

The power to attach conditions as it thinks fit as regards to payment of any sum under the mortgage

Question 62

What is an additional tool to s.36?

Answer 62

Pre-Action Protocol for possession claims

Question 63

What protections are available for spouses?

Answer 63

- Mortgagee is required to serve notice on any spouse who has registered occupation under the Matrimonial Homes Act 1983 - Under s.55 Family Law Act 1996, spouses are entitled to be made part if it includes a dwelling house - S.36 allows spouses to play a more active role