Administration of justice in mortgage possession claims: uncommon situations

Common questions with uncommon answers

  • Date: 03 Nov, 2015
  • In: Articles

Day after day, in the County Court up and down the country, District Judges hear mortgage possession claims of residential property based on arrears. They regularly adjourn or suspend the possession order, under s36 of the Administration of Justice Act 1970, if arrears can be paid over the lifetime of the mortgage. Such claims are such familiar territory, that the principles applicable seem to need no rehearsal. Yet, even very small changes in the facts send this barrister back to read the familiar wording of the section again and again.

Let us start with a problem about which recent case law has spoken. It is common now for the possession claim to have been made after the end of the mortgage term. What then is the “reasonable period” within which the court must find the borrower likely to be able to pay arrears, now the whole of the mortgage sum? The court has always had an inherent jurisdiction outside the Act to adjourn where the borrower is likely to be able to redeem, for example by sale, though the allowable timescale is likely to be short. It seems that s36 gives a longer period. In LBI HF v Stanford (Ch D, 4 September 2015, unreported) the court postponed the possession order under s36, on payment of £1 million, the possible shortfall on a possible sale, despite the mortgage term having expired in 2012, and despite the court having already suspended the possession order for 7 months in January 2015. It seems that s36 allows the court considerable power over repayment far beyond the original contract between the borrower and the lender, even when there is little equity in the property.

What about when the breach of the mortgage for which possession is sought is not a failure to pay? The most common example is letting or sharing occupation of an owner-occupier mortgage without consent. S36 applies to that kind of breach as well. It allows adjournment, suspension or postponement of the possession order if the mortgagor “is likely to be able within a reasonable period ... to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage”. The remedy needed would be the departure of the sub-tenants or occupiers, something which might be difficult to procure without a court order in separate proceedings, or might be prevented or delayed by security of tenure, as in Britannia Building Society v Earl [1990] 1 WLR 422, where the tenant had Rent Act 1977 protection.

What would a reasonable period be? If the borrower is maintaining payments, he might well argue that there is no risk to the security, and a reasonable period is the rest of the mortgage term. A covenant against letting or sharing of occupation is not obviously directed at a lender’s security, so a court might find this a tempting argument. One of the obvious reasons for the covenant is because mortgage companies often have different mortgages for owner-occupied properties and for buy-to-let properties because of different levels of risk as to repayment. Thus the breach goes to the heart of the original bargain. That rationale, and the possible consequences for the mortgage company, should be set out in evidence to help resist the borrower’s submission.

Some of the mortgage provisions don’t fit very well with the s36 wording “breach of any other obligation” at all. What, for example, is the position when the mortgage permits the lender to take possession on the death of the (human) borrower? Does the court have jurisdiction under s36?

The property will vest in the executor of the will of the dead borrower, or, once letters of administration have been granted, the administrator. That person (as executor or administrator) is certainly a “person deriving title under the original mortgagor” under s39 of the Act and hence included in “mortgagor”, so that if the breach had been arrears at death, the ability of the estate of the dead borrower to pay arrears, for example, via the executor or administration would clearly be relevant to s36. However, the right of the lender to take possession on the death of the borrower does not seem to be an “obligation” within the meaning s36, and even if it were, it is clearly not remediable, hence s36 seems not to apply.

One final point that borrower’s often find surprising: there is nothing in s36 which prevents the lender taking possession without a possession order. The statutory reason why lenders rarely do so is s6 of the Criminal Law Act 1977 which makes it a criminal offence to use violence, or threaten it, to secure entry into premises when there is someone known to be present opposed to entry. That is unless there is lawful authority – which is what a possession order and a warrant gives. If the possession is taken outside court, then provided any relevant conditions in the mortgage terms have been complied with, the borrower’s only recourse to prevent sale is to redeem, even if possession was taken for very small arrears. S36 does not apply.

Could s36 be avoided, even in court, if a receiver were appointed and the receiver brought a possession claim? S36 applies “where the mortgagee ... brings an action in which he claims possession of the mortgaged property”. Thus a lender claim against the borrower’s tenants, is one to which s36 could apply; s36 does not require a claim for possession against the mortgagor. However, the receiver has no title, so he does not “deriv[e] title under the original ... mortgagee” within the meaning of s39. Indeed, he is the deemed agent of the borrower. “Mortgagee” in s36 cannot include the receiver; s36 seems not to apply.

What about a receiver’s claim for possession against the borrower? Is such a claim possible? That’s a common question whose uncommon answer must wait for another day.