Questions

A mortgagee has the power to possess a property as soon as a mortgage is executed[1] however it is more commonly expressly provided for as a remedy when a mortgagor goes into default on the mortgage.[2]

Once in possession of a property, a mortgagee in possession (MIP) is entitled to sell it in order to raise funds.[3] In order to facilitate a sale, mortgagees expect to take a property with vacant possession, however more often than not items are left behind. Any item that is left behind is considered to be an obstacle to the mortgagee taking possession of the property.

Whereas the MIP takes legal ownership of the property, they are considered to temporarily possess the goods left behind because they are acquired involuntarily. As such, they are obliged to do what is ‘right and reasonable’[4] with them.

What is ‘right and reasonable’?

Two recent cases have assisted in determining what ‘right and reasonable’ means in the context of a MIP handling goods that are left behind at a property.

In the first case[5] the claimants were given numerous clear opportunities to remove their possessions from the property. When they failed to do so, the defendants took the decision to sell them.

It was held that the defendants acted reasonably. They gave the claimants multiple opportunities to remove the goods, even providing for a house sitter on one occasion so that their possessions could be removed under secure conditions. It was accepted that it would have been easier for the mortgagee to sell the property without the items at the property, and that the goods were an obstacle to them doing this. The claim was dismissed.

A similar finding was reached in a second case[6] which was so antagonistic that it received national press coverage. The mortgagor was particularly hostile towards the repossession of her property and took no steps to remove her goods, despite being given numerous warnings and plenty of opportunity.

In a scathing judgment against the claimant, the Judge dismissed the claim. He found that the claimant’s actions were a deliberate ‘tactic’ to prevent the defendants from taking possession of the property.

It was also found that the decision to dispose of the goods was right and reasonable in light of the substantial balance outstanding on the mortgage, and the low value of the goods. He considered that it was ‘the most sensible and cost effective way for the MIP to deal with matters’.

In practice…

The cases detailed in this blog demonstrate the difficulties that lenders face in enforcing possession orders.

The starting point continues to be the mortgage deed, as it sets out a framework against which the court can judge ‘right and reasonable’ conduct.

The court will also have regard to the outstanding balance on the mortgage, and the value of the goods themselves. Storage may be appropriate where the amount of goods left is small, where they are valuable, or they are of such a type that they can be stored at low cost. In other circumstances it may be that selling goods is reasonable, for instance if they are of high value.

Perhaps most usefully, these cases highlight the importance of maintaining an open dialogue with mortgagors in default. Both MIPs continuously attempted to maintain a dialogue with the mortgagor. They set timescales, sent emails, chased no-response emails, and above all they gave them ample time to clear the property. Again, this is indicative of reasonable behaviour.

It can be difficult for lenders to exercise their powers in what are frequently hostile situations. What these cases make clear, is that when faced with a hostile mortgagor a lender should be aware of their powers, and exercise them in a ‘right and reasonable’ way.

This post was edited by Poppy Ball. For more information, email blogs@gateleyplc.com.

[1] s 95(4) LPA 1925 (Four-Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317)

[2] The specific rules for the procedure for bringing actions for possession are set out in CPR 55. There are additional requirements when dealing with a residential property.

[3] s. 104(1) LPA 1925

[4] Elvin & Powell Ltd v Plummer Roddis Ltd 50 TLR 158, applied Scotland v Solomon [2002] EWHC 1886

[5] Da Rocha-Afodu and another v Mortgage Express and another [2014] EWCA Civ 454; [2014] 2 P. & C.R. DG10

[6] Campbell v Redstone Mortgages [2014] EWHC 3081 (Ch)


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.