#2024 - Remedies Of The Mortgagee - Land Law

Remedies of the Mortgagee:

1. Foreclosure

• Traditional right of mortgagee is to ask the court to put end to equitable right to redeem

  • This is inapplicable until after the legal date for redemption has passed

  • And mortgagor normally has six months to pay off the mortgage

• Smith: However, power is rarely exercised these days

  • If property is worth more than the debt, than it is more advantageous that the mortgagee sell the property

    • Which will ensure that the debt and other expenses are paid off

      • With the remaining balance given to the mortgagor

  • If property is worth less than the debt

    • Then foreclosure will bar the mortgagee from claiming anything more than the value of the property sold from the mortgagor

      • Because the mortgagor has lost the right to redemption

        • The mortgagee will lose the right to sue for the balance of the debt

          • And the value of the property will have to suffice.

2. Possession

• The mortgagor’s possession

  • Mortgagees can technically take possession immediately after mortgage agreed

    • But mortgagors will generally be in possession

      • Thus, where possession is sought or taken, the mortgagor must be allowed the opportunity to redeem

      • Smith: regardless, possession not normally taken until default b/c point of taking possession is to exercise power of sale – which isn’t available until default.

Court’s jurisdiction to postpone possession under common law

• Birmingham Citizens BS v Caunt [1962]

  • Russell J:

    • Where mortgagee is entitled to possession by reason of default of mortgagor -and the whole money has become payable –

      • The court has no jurisdiction to decline to make the order or to adjourn the hearing.

    • The sole exception is where a short adjournment would afford the mortgagor a chance to pay off the mortagee in full or otherwise satisfy him;

      • but it should not be done if there is no reasonable prospect of this occurring

• Quennell v Maltby [1979]: wife of mortgagor bought mortgage from bank, tried to use it to evict tenants by taking possession when bank had previously refused to do so.

  • Lord Denning:

    • Equity should be able to step in and restrain a mortgagee from getting possession unless it is

      • bona fide

      • and is reasonably for the purpose of enforcing the security

        • Not for any ulterior motive as in the present case.

Statutory Discretion via Administration of Justice Act 1970

• S.36: if court considers that if it exercises powers, the mortgagor is likely to be able within a reasonable period to pay any due sums under the mortgage

  • Then the court has the power to adjourn proceedings, or suspend/postpone execution of a possession order

    • BUT must be a dwelling, not a business.

• Problem:

  • Halifax BS v Clarke [1973]: Mortgage had default clause that on default, whole payment of debt (not just instalment) would be due – hence “any due sums” would be full amount and therefore no prospect of being able to pay full amount.

  • Administration of Justice Act 1973 s.8:

    • Where mortgagor pays in instalments but clause provides for default that full payment due

      • Then for purposes of AJA 1970 s.36 court may treat as due only such payments expected as if no such clause

• Cases which fall into s.36 AJA 1970 and s.8 AJA 1973:

  • Earlier payment on default clauses

    • S’all good.

  • NOT Overdrafts

    • Habib Bank Ltd v Taylor [1982]: D wanted to defer payment of overdraft using s.36 and s.8.

      • Oliver LJ:

        • For s.8 to apply you need two things:

          • A provision that mortgagor entitled to pay the principal by instalments or defer payment.

          • AND a provision for earlier payment in the event of any default by mortgagor

        • Here, there is no provision for earlier payment

          • Because realistically, there can be nothing earlier than the bank’s demand for payment when payment can be demanded.

  • BUT Endowment Mortgages are allowed

    • Problem = no instalments for payment of such a mortgage – thus no deferment as capital not due until policy matures

      • Bank of Scotland v Grimes

        • Griffiths LJ:

          • Point of Act was to give some relief if looks likely that X will be able to continue to pay in the future.

            • Not permitting postponement for common endowment mortgages would defeat this point.

• Role of arrears

  • AJA s.38 and AJA 1973 s.8 assumes that

    • Will be no possession attempt if arrears paid

    • Will be no possession attempt if no arrears to pay

      • Problem = assumptions bear no relationship to right to possession

  • Western Bank Ltd v Schindler [1977]: defective drafting meant no interest due til end of nine years and that failure to pay was not a breach. WBL attempted possession when no payments made.

    • Scarman LJ (maj):

      • Sometimes would be appropriate to impose time limit upon a mortgagee seeking possession only of his common law right.

        • Danger to security which makes mortgagee take possession may be exaggerated.

          • Therefore sense in applying subsection (2) to cases where the mortgagee relies only on his estate and alleges no arrears or default

    • Goff LJ (dis):

      • AJA s.36 only applies to cases where mortgagee is in default

        • Seems odd to try and approgate common law right to possession by the back door.

      • Even if it is absurd that possession can be deferred for default but not for non-defaults

        • The power of sale can only be made where there is a default

          • And possession will only be very rarely sought except for the purposes of making a sale b/c of the default

    • Smith: argument of Goff LJ overlooks case where X defaults but then resumes payments – if AJA doesn’t apply then X still has power of sale against him even if can succeed on possession.

• Exercise of discretion

  • Over what time period must the arrears be paid?

    • Cheltenham & Gloucester BS v Norgan: terms of mortgage where for instalments to be paid over period of 22 years

    • Waite LJ: has been suggested that period of 2-6 years postponement is “reasonable”

      • But if mortgagor can pay back everything at end of mortgage, reasonable period could be whole length of mortgage.

        • Means that if the mortgagor still cannot meet these requirements

          • mortgagee can be heard with justice to say that the mortgagor has had his chance, and s.36 should not be used again.

    • Smith: could be argued that this allows breach of instalment payments with impunity

      • But detailed plan of repayments must be drawn up by borrower and courts emphasise that no future mercy will be shown for default

        • Means this probably favours lender over borrower.

    • BUT Bristol & West BS v Ellis [1997]: D wanted to retain possession until kids finished education and then sell, but could only give 10 extra to pay off arrears.

      • Auld LJ:

• Decision of Norgan is not available to a mortgagor who can’t discharge the arrears by periodic payments

• And whose only prospect of repaying the loan is the sale of the property.

  • Postponement for purposes of capital repayment

    • Court also willing in some circumstances to postpone possession if mortgagor is in the advanced process of selling property

      • Advantages for both sides here – mortgagor more likely to raise more money, mortgagee more likely to get all expenses paid than if did the sale itself.

    • Bristol & West BS v Ellis [1997]:

      • Auld LJ

        • Where the property is already on the market but some delay on the part of the mortgagor,

          • a short period of suspension of a few months would be reasonable

        • BUT where already been considerable delay and sale proceeds are unlikely to cover mortgage debt/arrears

          • the normal order would be for immediate possession, not suspension.

• Payment by spouses, co-habitees or civil partners

  • Family Law Act 1996 s54,55: This is considered as on behalf of the mortgagor.

Sale

• If mortgagor unable to pay debt, then sale is most likely remedy for mortgagee. Mortgagor loses property but can receive any money left over when debt paid and expenses covered.

  • LPA 1925 s.104(1):

    • Right of sale goes to all mortgagees

    • But prior mortgagees get priority in sale

When is there a power of sale?

• LPA 1925 s.101(1)(i)

  • Right to sale occurs when mortgage is one made by deed

    • When mortgage money becomes due

    • Smith: in old law, this was six months after the mortgage had been created

      • In most modern mortgages this could be a considerable amount of time, however

        • And the situation is complicated by the Q of instalments.

      • Is usual to put in a standard clause stipulating that mortgage money will become due after 6 months

• LPA 1926 s.103

  • AND the satisfaction of one of three conditions:

    • (1) Three months notice requiring repayment has been given (but this notice can’t be sent out within first six months)

    • (2) Interest is in arrears for two months

    • (3) Some other breach of the mortgage has occurred

• Smith: generally held that s.101 governs when power arises

  • And s.103 governs when power is exercisable

Can the mortgagor prevent sale?

• Presuming s.103 and s.101(1)(i) is complied with then the only way of preventing a sale is if the mortgagor repays his debts

  • Per Duke v Robson [1973]:The fact that he has contracted with another to sell the property is irrelevant

What duties does a mortgagee have to the defaulted mortgagor during sale?

• There is a danger that mortgagees will only sell property in order to recover the debt

  • Not sell the property for the best price possible and then grant the amount over the balance to be settled to the mortgagor

• Duty to “sell well”

  • Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971]:

    • Salmon LJ:

      • Once decision to sell has been taken

        • Mortgagees most obtain the true market value of the property

  • This means that...