General
The general rule is that a mortgagee is entitled to possession of the mortgaged property at any time after the mortgage or charge is signed. Unlike the position in Ireland, a legal charge carries the same rights to possession as a mortgage. The legal charge is not fully effective until registered in the Land Registry.
The loan agreement or mortgage document may provide that possession cannot be taken by the mortgagee until certain conditions apply. There are some limited number of cases where the provisions of statues restrict the right to possession. These cases will not be encountered frequently and the issue would normally have been flagged at the underwriting stage.
In a mortgage loan payable by installments, it is usually provided that the mortgagee is not entitled to possession until the mortgagor has defaulted. Generally, the borrower may retain possession of the property until the mortgagee seeks its. The mortgagor is generally entitled to receive the rents for his own use and is not obliged to account to the mortgagee, unless required. The mortgagor can generally take legal action against anyone, as if he held the property absolutely, except the mortgagee.
Peaceable Possession
The mortgagee may take possession of the property by taking physical possession of the land, if this can be done peaceably. Alternatively, it may bring a court application for possession. The mortgagee need not give notice before entering or commencing proceedings. Being a mortgagee in possession has certain implications and duties which are set out in the next chapter.
In the case of a rented property where the lease is binding on the mortgagee, the right to possession is exercised by the notice to the tenant to pay the rent to the mortgagee. The receipt of rent by itself does not necessarily make the mortgagee, a mortgagee in possession. The question depends on whether the mortgagor retains control and management powers over the property and dealings with the tenant. A mortgagee can demand the rent without necessarily becoming a mortgagee in possession. However, there are risks that it will unintentionally become a mortgagee in possession.
Physical possession can only be taken, if it can be done peaceably. If any force or violence is used, the mortgagee may be prosecuted under criminal law. Force may arise not only against persons, but may arise in the manner of entry. The breaking of a door, window or lock would not be peaceable. Any presence of numbers or implied threat is likely to make a taking of possession not peaceable, even if consent appears to be obtained.
A mortgagor may be in possession of property, notwithstanding that he is not in actual occupation at a given point in time. For example if a borrower secures a property with the intention of returning within a reasonable time, the borrower is in possession, although not physically present.
Where peaceable possession is taken, the Administration of Justice Act does not apply. This Act allows the court to delay or place conditions on repossession. However, it has been confirmed that the Act does not affect a repossession without resort to court.
Where the borrower’s own dwellinghouse is mortgaged, a court order is prudent unless the property is abandoned. There are issues under the Human Rights Act that may impact on the repossession of the borrower’s dwellinghouse without a court order. A court order for possession is always required for Consumer Credit Act loans. They will be rarely encountered as they can only be second charges over the borrower’s own dwellinghouse.
Horsham Case
The recent case of Horsham Properties Group Ltd v Clark in October 2008 reaffirmed the long-standing principle that a mortgagee need not obtain possession of a mortgaged property, in order to exercise its power of sale. The case received considerable attention because it highlighted the fact that under most mortgages, the secured property can be sold without a court order, with the mortgagor in place.
The case highlighted the fact that a mortgagee could sell the property with owners in place without any recourse to court and without the protections in the Administration of Justice Act. The implication of the case was that a mortgagee could leave it to a purchaser to recover possession. This raised the spectre of mortgagees selling properties to unscrupulous unregulated purchasers who would purchase and obtain possession by whatever means they saw fit.
Because of the potential for potentially unfair practice that the case highlighted, the Council of Mortgage Lenders members have declared that they will not seek to sell a mortgaged owner occupied residential property without first obtaining a court order for possession. In addition, the members agree that there will not appoint a receiver to sell a residential without first obtaining a court order for possession. It may be that repossession of an owner occupied property without a court order or a sale with the owners in place is in breach of the Human Rights Act.
However, the CML declaration specifically does not apply to commercial transactions and buy to let loans. It does not apply to vacant or abandoned properties. The CML defended the right to sell a buy to let property with tenants in place as necessary and reasonable. They pointed out that a buy to let property is no different to a commercial loan secured on premises with a portfolio of business tenants.
The UK Government moved draft amendments to the Administration of Justice Act 1970 and related statutory provisions (s 89 Housing Act 1980) in the draft Banking Bill 2008.
The initial draft amendments to section 36 were withdrawn, after sustained pressure from the Council of Mortgage Lenders, but were followed by the introduction of a Private Members Bill : The Home Repossession (Protection) Bill. This is the position as of July 2009.
