Repossession

Question 1

When does power of sale arise

Answer 1

Under s.101 of the Law of Property Act 1925, power of sale arises once the mortgage is made by deed

Question 2

When does power of sale become exercisable

Answer 2

1. At least 3 months’ notice has been served on the borrower demanding payment, OR
2. The borrower has been in default for at least 2 months on:

• Interest
• Or part of the principal

In practice, most lenders follow the Mortgage Conduct of Business (MCOB) rules and may give longer notice or attempt possession before selling.

Question 3

What Happens After the Sale?

Answer 3

The lender must:
1. Act in good faith and get the best price reasonably obtainable
2. Apply sale proceeds in this order:
* Repay sale costs
* Repay the mortgage debt
* Pay any subsequent charges
* Return any surplus to the borrower

If the proceeds are less than the debt, the borrower may still be liable for the shortfall.

Question 4

What is equitable interest

Answer 4

“Equitable interest” is a legal concept that refers to a person’s right to obtain full ownership of a property or asset, even though legal title is held by someone else. It’s common in situations where the law recognizes that someone should have a beneficial claim to a property, even if they aren’t listed as the official owner.

Question 5

Examples of equitable interest

Answer 5

1. Trusts: If you’re a beneficiary of a trust, you have equitable interest in the trust property, even though the trustee holds legal title.
2. Trusts: If you’re a beneficiary of a trust, you have equitable interest in the trust property, even though the trustee holds legal title.
3. Real Estate: If you’ve entered into a contract to buy a house and are making payments, you may have equitable interest, even though the title hasn’t transferred yet.
4. Relationships: In property disputes between couples (especially unmarried ones), one partner might claim equitable interest if they’ve contributed to the purchase or improvement of a home. (in a repossession claim, there is no equitable interest if the partner that’s not on the title is only making payments towards bills, hence there is no overriding interest that override bank/mortgagee’s legal charge)

Question 6

What is not an equitable interest

Answer 6

In a repossession claim, there is no equitable interest (hence overriding interest) if the partner that’s not on the title is only making payments towards bills.

Contributions to utility bills, groceries, or general living expenses are considered non-proprietary — they support daily life, not the acquisition or enhancement of the property. Thus, they don’t amount to a beneficial interest in the land.

The equitable interest has to be proprietary in nature, and without equitable interest hence there is no overriding interest that override bank/mortgagee’s legal charge)

Question 7

What is an overriding interest

Answer 7

Overriding Interest = Proprietary Interest + Actual Occupation

1. The person must have a proprietary (equitable) interest in the land. This could arise from:

• A constructive trust (e.g., based on contributions to the purchase price, mortgage, or improvements + common intention)
• A resulting trust (direct financial contribution to the purchase)
• An express trust (clear agreement or declaration of shared ownership)

Mere personal rights (e.g., promises or contributions to bills) are not enough.

2. The person must be in actual occupation of the property

• They must be physically present and using the property as a home
• Even temporary absences (e.g., hospital stay) may still count as actual occupation, depending on the facts

If both conditions are satisfied, the equitable interest is “overriding” because: It binds purchasers or lenders, even if not registered

So, in a repossession scenario, the bank’s legal charge could be postponed to the person’s equitable interest if they are in actual occupation

Question 8

What is postponed overriding interest

Answer 8

If a person (e.g. a spouse) consents to the mortgage, their equitable interest is usually postponed to the bank’s legal charge — meaning the bank’s rights take priority and repossession is allowed, even if that person is in actual occupation.

Because equity will not assist someone who agreed to allow the bank’s rights to come first.

It’s based on the equitable maxim:

“Where equities are equal, the first in time prevails – but where a later interest is acquired with the prior interest-holder’s consent, the prior interest is postponed.”

In simpler terms:

If you agree to let someone else’s rights come first, you can’t later claim priority over them.

Question 9

What is Resulting Trust

Answer 9

A resulting trust typically arises when:
* A person contributes money to the purchase price of a property (e.g., deposit or mortgage).
* The property is held in someone else’s name, but the contribution implies they intended to have a share.
No need for a promise or discussion — it’s based on what’s fair from the money contributed.

Question 10

What is Constructive Trust

Answer 10

A constructive trust is more flexible. It arises when:
* There is a common intention (express or inferred) that both people should share the property.
* One person relies on this intention and suffers detriment (e.g., contributes money, gives up a career, pays bills, renovates).
* The court says it would be unconscionable for the legal owner to keep the property entirely for themselves.