Regular updates on relevant case law and legislation - October 2008

CHAPTER 18 MORTGAGES

Box A2 The right to take possession (page 529)

In National Westminster Bank Plc v Mr Robin Ashe (Trustee in bankruptcy of Djabar Babai) [2008] EWCA Civ 55; WLR 710, Mr and Mrs Babai granted a legal mortgage to Nat West. In this case, though, the Bank had not given Mr and Mrs Babai the right to possession until there was a default on the mortgage payments so the Bank’s right to possession arose when the mortgage was created and did not depend on any default on the payments. Mr and Mrs Babai defaulted on the mortgage payments. The Bank did not take possession of the property (after which it could have sold the property and taken the outstanding loan from the proceeds). Mr Babai became bankrupt and his trustee in bankruptcy, Mr Ashe, claimed that, Mr and Mrs Babai had been in adverse possession for over 12 years. Remember that under section 15 (1) of the Limitation Act 1980 any action to recover land must be brought within 12 years of the date on which the right of action accrued. The right to take possession and recover the land started on the day the mortgage was created. Each time a payment was made, the 12 year period started afresh. More than 12 years had passed since the last payment, therefore Mr and Mrs Babai could claim adverse possession and the Bank’s charge (mortgage) had been extinguished. It was also held that possession was to be given its ordinary meaning. Mr and Mrs Babai were in ordinary possession of the land. Adverse possession as stated in Pye v Graham (2002) referred to the capacity of the person in possession, not to the nature of that person’s possession. The Bank, of course, was also out of time to sue on the contract (see Box A1 page 526) for repayment of the capital. The Bank defended its case by arguing that Mr and Mrs Babai had been in the property with the implied consent of the Bank under paragraph 8 of Schedule 1 of the Limitation Act 1980. As the Bank had not withdrawn this consent, time could not have started to run against it. It was held that Mr and Mrs Babai occupied the property because they held the registered title to the land, not because the Bank had given them permission to live in the property when the charge (mortgage) was created. As the Bank hadn’t given them permission to live in the property when the charge (mortgage) was created, there was no permission, implied or otherwise, to withdraw. The Bank simply had a right to possession which was not dependant on withdrawing any form of permission from Mr and Mrs Babai and which it had chosen not to exercise within the 12 year limit. The Bank’s mortgage was extinguished under section 17 of the Limitation Act 1980. Mummery LJ used the words ‘it may come as an unpleasant surprise to the Bank’, which is probably the understatement of the year. To stop this happening to other banks if they didn’t want to take possession, he advised them to obtain part payments of the mortgage debt or a written acknowledgement of the debt which would start the limitation period afresh. He also reminded them that they had access to expert legal advice. The other lesson to be learnt here is that Banks should state clearly that their right to possession should start from the date of any default on the mortgage payments. This would stop time running from the date the mortgage is created. This scenario would not happen in registered land because the claimants would be unable to prove the requirements under paragraph 5 of Schedule 6 to the Land Registration Act 2002 of either estoppel, entitlement for some other reason or boundary dispute (page 98).

<< back