MORTGAGES II

Jan Cookson

A LEGAL MORTGAGEE’S REMEDIES

1. POWER OF SALE

2 FORECLOSURE

3. APPOINTMENT OF A RECEIVER

4. SUE ON MORTGAGOR’S COVT.TO REPAY

THE MORTGAGEE’S STATUTORY POWER OF SALE

IN ORDER FOR THE MORTGAGEE TO SELL USING ITS STATUTORY POWER:-

THE POWER

SHOULD HAVE BOTH

AND

ARISEN (s.101 LPA 25);

BECOME EXERCISABLE (s.103 LPA 25)

THE MORTGAGEE’S STATUTORY POWER OF SALE

ARISES UNDER s.101 LPA 25IF BOTH THE FOLLOWING CONDITIONS ARE MET:-

1. the mortgage must have been made by deed; &

2. the mortgage money must be due

THE MORTGAGEE’S STATUTORY POWER OF SALE

BECOMES EXERCISABLE UNDER s.103 LPA 25IF ANY OF THE FOLLOWING CONDITIONS ARE MET:-

1. M’ee has served notice on M’or requiring payment of the mortgage money & M’or has failed to pay for 3 months after receiving the notice; or

2. Interest under the mortgage is 2 months or more in arrears; or

3. M’or is in breach of some other covenant in the mortgage deed

(i.e. other than repayment of mortgage money or interest )

THE IMPACT OF THE MORTGAGEE SELLING:-

Before power of sale has arisen

After arisen but before exercisable

After arisen and exercisable

The position of a purchaser (s.104(2) LPA 25)

THE MORTGAGEE’S STATUTORY POWER OF SALE

Note: there is very likely to beAN EXPRESS POWEROF SALE CONTAINED

IN THE MORTGAGE DEED

Horsham Properties Group Ltd v Clark and Beech

[2008] EWHC 2327 (Ch)

Mortgages Power of Sale and Residential Property

Consultation Paper : Open date: 29 December 2009

Closed date: 28 March 2010

http://www.justice.gov.uk/consultations/docs/mortgagespower-sale.pdf

IS A COURT ORDER NEEDED BEFORE SALE ?

Horsham Properties Group Ltd v Clark and Beech

M. by Clark and Beech to L

Default

L doesn’t take possession &

simply sells to Horsham

No Ct order

No Ct order

Ct order but s.36

AJA 70 doesn’t

apply

Horsham seeks possession onbasis Clark & Beech are now trespassers

Breach of Art.1ECHR

unlawfuldeprivation

of possession?

THE MORTGAGEE’S CONDUCT OF A SALE

THE NATURE OF A MORTGAGEE’S DUTIES IN THE CONDUCT OF A SALE

LEADING CASE:

SILVEN PROPERTIES v RBS LTD 2004 1WLR 977

A MORTGAGEE IS NOT A TRUSTEE OF THE POWER OF SALE FOR THE MORTGAGOR

But MUST ACT IN GOOD FAITH; & HAS A DUTY AS TO PRICE OBTAINED

WHAT DUTIES EXIST?

1. ?A DUTY TO EXERCISE POWER OF SALE? ‘A mortgagee has no duty at any time to exercise his powers as mortgagee to sell, to take possession or to appoint a receiver and preserve the security or its value or to realise his security. He is entitled to remain totally passive.’ Silven

‘A mortgagee is not a trustee of the power of sale for the mortgagor… [he]is at all times free to consult his own interests alone whetherand when to exercise his power of sale…The mortgagee’s decision is not constrained by reason of the fact that the exercise or non exercise of thepower will occasion loss or damage to the mortgagor…’Silven

2. ?A DUTY AS TO TIMING OF SALE?

‘It is well settled that a mortgagee is not a trustee of the power ofsale for the mortgagor. …the mortgagee is entitled to exercise it for hisown purposes whenever he chooses to do so. It matters not that themoment may be unpropitious…He has a right to realise his security byturning it into money when he likes’. Cuckmere Brick Co. Ltd

Cuckmere Brick Co. Ltd v. Mutual Finance Ltd [1971] Ch

949.

China and South Sea Bank Ltd v Tan soon Gin [1990] 2

WLR 56

3. DUTY AS TO PRICE

the mortgagee must ‘take reasonable precautions to obtain the true market value of the mortgaged property at the date on which he decides to sell it’ Cuckmere Brick Co. Ltd

• ?Duty to inform buyers of matters that improve the price? Cuckmere Brick Co. Ltd.

• ?Duty to improve the property or increase its value for sale? Silven

4. A DUTY AS TO WHO THE PURCHASER IS?

• TO THE MORTGAGEE?

• TO AN ASSOCIATED PERSON?

Tse Kwong Lam v. Wong Chit Sen [1983] 1 WLR 1349 Corbett v Halifax [2003] 4 ALL ER 180

4. ?A DUTY AS TO PURITY OF MOTIVATION FOR SALE?

Meretz Investments NV v ACP Ltd [2007] Ch.197

THE EFFECT OF A SALE BY A MORTGAGEE

THE EFFECT OF A SALEBY A MORTGAGEE

s.104(1) LPA 25

1. What estate does the Mortgagee convey?

2. What interests is the sale• subject to?• free from?

3. What happens to Mortgagor’s right to redeem

THE EFFECT OF A SALE BY A MORTGAGEE

s.105 LPA 1925The Mortgagee must apply the

sale proceeds to:

1. Pay off any mortgage with priority to which the sale is not made subject

2. Pay costs properly incurred in arranging sale

3. Discharge own mortgage debt

4. Pay any balance to the Mortgagor or the other person‘entitled to the mortgage property’

ILLUSTRATION Abbey National has a charge

registered in 2000

Bradford & Bingley has a charge registered in 2001

The Chelsea has a charge

registered in 2002

What happens if B & B sells the property?

CAN A MORTGAGOR SELL

AGAINST THE MORTGAGEE’S WISHES?

THE USE OF

s.91(2) LPA 1925

C: Charges Register[SPECIMEN]

1. 02.12.2002) REGISTERED CHARGE dated 23rd November 2002

4. PROPRIETOR: CHELSEA BUILDING SOCIETY of Thirlestaine Hall, Thirlestaine Road, Cheltenham, Glos. GL53 7AL

s.91(2) LPA 1925

‘In any action, whether for foreclosure or for redemption or for sale.. the court, on the request of the mortgagee, or of any person interested either in the mortgage money or in the right of redemption and notwithstanding that …any other person dissents … may direct a sale of the mortgaged property on

such terms as it thinks fit.’

s.91(2) LPA 25

NEGATIVE EQUITY CASES:-• Palk v Mortgage Services Funding PLC [1993] 2 WLR 415• Polonski v. Lloyds Bank Mortgages Ltd [1997] Times 6th

May• Barrett v. Halifax Building Society [1996] 28 HLR 634

BUT C& G PLC v Krausz 1997 :

M’ee should control sale if it is also seeking one Court can’t postpone a possession order to allow M’or

to apply for a s.91(2) order to sell if it won’t clear the debt

Palk

Figures

Mortgage debt increasing: £43,000.00 p.a.

Proposed Proposed rental income: £13,000.00 p.a.

Debt would grow annually by £30,000.00