Regular updates on relevant case law and legislation - October 2009

CHAPTER 18 MORTGAGES

Box A2 The right to take possession (page 528)

In National Westminster Bank Plc v Ashe [2008] EWCA Civ 55; [2008] 1 WLR 710, Mr and Mrs Babai had stopped making the mortgage repayments. The Bank hadn’t taken possession and so some 13 years later the Babais claimed adverse possession of the land. The Bank argued it had given them permission to remain in the property which would defeat their claim. The court held that the Babais were occupying the property as registered proprietors of the land, not because the Bank had given them permission, so the Bank’s charge was extinguished under section 17 of the Limitation Act 1980. The Bank was also out of time to sue on the contract. Mummery LJ used the words ‘it may come as an unpleasant surprise to the Bank’, which is probably the understatement of the year.

Box B1i Postponement of possession (page 536)

In Horsham Properties Group Ltd v Clark [2008] EWHC 2327 (Ch); [2008] 41 EG 156 (CS) Mr Clark and Ms Beech purchased a property together with the aid of a mortgage. They fell into arrears with the repayments and the mortgagee appointed a receiver under the terms of the mortgage deed. The receivers sold the property, which they were allowed to do under the terms of the mortgage deed. This purchaser then sold the property on to Horsham Property Group. The entire proceedings had avoided the Administration of Justice Act 1973, which was lawful following Ropaigealach v Barclays Bank plc [1999]. Horsham Property Group issued possession proceedings against Mr Clark and Ms Beech who were still living in the house on the basis they were trespassers. Ms Beech claimed that there was a breach of human rights under Article 1 of the First Protocol to the Convention. Amazingly, Ms Beech also thought she should be able to use the Administration of Justice Act 1970 against the person who had bought the property from the lender.

Article 1 states:

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

The argument was on the basis that there was an unlawful deprivation of possessions because the court had not ordered sale or possession. It was held that the appointment of the receiver and the sale had arisen because of the terms in the mortgage contract. It was not due to state intervention but due to the contract between the borrower and the lender. As such, there could be no deprivation of possession. Even if it was, the fact that a lender could sell the property it held as security without having to go to court was justified in the public interest because the ability to do so allowed lending secured on property at affordable rates of interest. The judge went on to consider what would have happened if the appointment of the receiver and the sale had been brought about by the legislation i.e. section 101 of the Law of Property Act 1925. Even if the property had been sold under section 101, and even though the ‘equity of redemption’ is a possession, this would not be a deprivation of possessions. The statutory power of sale saved people having to write out the power in every mortgage agreement and it also gave effect to the agreement between the parties which was that the property could be sold if the borrower was in default. Section 101 implemented rather than overrode the private bargain between the borrower and the lender. The powers in section 101 were also subject to a contrary intention (stated in section 101(4) of the Law of Property Act 1925) and so Ms Beech couldn’t argue that the power of the state here was rigid or arbitrary or discriminatory which she would have to do to prove a deprivation of possessions within the meaning of Article 1 of Protocol 1.

A lender had the right to go into possession immediately (see Box A2 page 528) by virtue of his estate in the land. The Administration of Justice Act 1970 could only be argued only when the lender had gone to court: Ropaigealach v Barclays Bank Plc [2000] QB 263. The court was bound by that decision in and any change extending the circumstances in which the Administration of Justice Act 1970 could be pleaded would have to be through Parliament. As Mr Justice Briggs said, ‘It would be quite wrong for the courts in a vigorous and imaginative interpretation of the Human Rights Convention to make that policy, as it were, on the hoof.’

Section 36 of the Administration Act 1970 couldn’t be used against purchasers from a lender not least because by that time the mortgage money had been paid off out of the sale, there was no mortgage which would attract the provisions of section 36 of the Administration of Justice Act anyway. As Mr Justice Briggs said,

‘In my judgment, although the definition of mortgagee in section 36 includes successors in title to an original mortgagee, it necessarily refers only to successors in title to the mortgage, claiming under the mortgage, rather than to successors in title to the mortgaged property, taking free of the mortgage.’

So what does this all mean? To quote Mr Justice Briggs again,

‘In conclusion therefore, it follows that the claimant is entitled to possession of the property as against Miss Beech, the Human Rights Act defence having entirely failed.’

It also means that people should read the terms of their mortgage agreement very carefully because if the terms allow a sale by the lender, the lender will be able to bypass the Administration of Justice Act 1970 and the borrower won’t be able to claim under it. Good news for lenders who will no doubt use this point to their advantage in today’s climate and bad news for borrowers in default who may rather wish they’d taken more notice of what they’d agreed to in the mortgage deed.

The Civil Justice Council has published the “Pre-action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property”. The aim is to ensure that repossession is the last resort. The Protocol has effect from 19th November 2008 and applies to residential mortgages. It does not alter the parties’ rights and obligations so the power of sale and the power to appoint a receiver are not affected. The lender must provide information about the arrears and should take all reasonable steps to try and sort out a new payment plan with the borrower taking into account the borrower’s circumstances. The Protocol also states that a lender should not start possession proceedings where a borrower has already started to sell the property and if this is the case, the borrower must authorise communication between the lender and the estate agent and conveyancer. Overall, the aim is to ensure that all other avenues have been looked at before repossession takes place and a lender must be prepared to stand up in court and say how it has complied with the Protocol. The downside is that there are no effective sanctions for not complying with the Protocol and no indication that the court could stop the claim for repossession because the Protocol has not been complied with.

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