The Homeowner Repossession (Protection) Bill
We have previously reported on the (apparently) controversial decision in Horsham Properties Group Ltd v Clark [2008] EWHC 2327 (Ch) which recognised that a lender could appoint a receiver to sell a mortgaged property under s 101 Law of Property Act 1925 without requiring a court order for possession, thereby circumventing the statutory protection available to the borrower in s 36 Administration of Justice Act 1970.
We also noted that the Government’s initial response was to move fairly extensive amendments to section 36 in the draft Banking Bill, then going through Parliament. The amendments were withdrawn but were followed by a Private Members Bill – the Home Repossession (Protection) Bill, introduced by Andrew Dismore MP (a solicitor) and given its First Reading in the Commons on 3rd February 2009. The draft Bill has now been published and is due for its second reading on 26th June 2009.
What does it do?
The Bill is short – only two sections. It is described as a Bill to “Amend the Law of Property Act 1925 to require a mortgagee to obtain the court’s permission before exercising the power of sale, where the mortgaged land consists of or includes a dwelling-house; to make certain powers available to the court in actions by mortgages for possession of a dwelling-house; and for connected purposes”.
How does it achieve it?
Section 1 provides as follows:
1 Amendment of the Law of Property Act 1925
In section 101 of the Law of Property Act 1925 (c. 20), after subsection (1A) insert-
“(1B) Where the mortgage is a mortgage of land, which consists of or includes a dwelling-house, subsection (1)(i) is subject to the mortgagee applying to the court for permission to exercise the power of sale.
(1C) On an application by the mortgagee under subsection (1B), the court may exercise any of the powers conferred on it by subsection (1D) below if it appears to the court that in the event of its exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage.
(1D) The court-
(a) may adjourn the proceedings, or
(b) on giving judgment, or making an order, for sale of the mortgaged property or at any time before execution of such judgment or order, may-
(i) stay or suspend execution of the judgment or order, or
(ii) postpone the date of sale
for such period or periods as the court thinks reasonable.
(1E) Any such adjournment, stay, suspension or postponement as is referred to in subsection (1D) above may be made subject to such conditions with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the court thinks fit.
(1F) The court may from time to time vary or revoke any condition imposed by virtue of this section.
2 Short title and extent
(1) This Act may be cited as the Home Repossession (Protection) Act 2009.
(2) This Act extends to England and Wales only.
Comment:
Section 101(1) of the Law of Property Act 1925 gives a mortgagee (where the mortgage is made by deed) four main powers, including, in section 101(1)(i) the following power:
A power, when the mortgage money has become due, to sell, or to concur with any other person in selling, the mortgaged property, or any part thereof, either subject to prior charges or not, and either together or in lots, by public auction or by private contract, subject to such conditions respecting title, or evidence of title, or other matter, as the mortgagee thinks fit, with power to vary any contract for sale, and to buy in at an auction, or to rescind any contract for sale, and to re-sell, without being answerable for any loss occasioned thereby
The draft amendments are designed to regulate the exercise of this power in two main respects:
(1) By making it a condition precedent to the exercise of the statutory power of sale that the lender first obtains the court’s permission; and.
(2) On any such application, to give to the court similar statutory powers to those appearing in section 36 Administration of Justice Act 1970.
Two obvious points to note. Apart from the introductory words in the proposed new subsection (1C), the rest of subsections (1C) to (1F) employ identical wording to that found in section 36(1)-(4) of the Administration of Justice Act 1973, so to this extent one would expect the court to exercise its new powers in much the same way as it would do under section 36. However, unlike section 36, which does not stipulate as a precondition to the exercise of the court’s powers that the lender first obtains the court’s permission to obtain possession (although in practice it always does in cases involving dwelling-houses), here the new Act requires the lender to obtain the court’s permission to exercise the power of sale. But it does not regulate when and in what circumstances the court should control the exercise of the power of sale. On one view, the court having been vested with the power to grant permission, retains a general discretion. The better view is that the sole purpose of the Act (having regard to the mischief in Horsham which it was intended to meet) is simply to extend to borrowers the same statutory protections in respect of sale as those appearing in section 36. Unless the court proposes to stay or suspend etc, it will not interfere with the exercise by the lender of the power of sale.
A couple of queries – what happens if the lender finds that the mortgaged property has been abandoned, or if the borrowers simply wish to hand over the keys to enable the lender to sell – does the lender still need the court’s permission to sell? In either case the borrowers are not going to apply for a stay or suspension on terms etc.
The answer is that it is not entirely clear. Section 101(1)(i) provides a statutory power of sale. The draft amendments modify the exercise of the statutory power. There is nothing to stop a lender from relying on any contractual power of sale and in fact section 101(4) specifically states that the “section applies only if and as far as a contrary intention is not expressed in the mortgage deed, and has effect subject to the terms of the mortgage deed and to the provisions therein contained”. So at the moment, the answer appears to be that a lender cannot exercise the statutory power of sale in any circumstances without first obtaining the court’s permission. But this doesn’t seem to prevent it from relying on a contractual power.
To an extent, this ‘loophole’ has already been closed by the lenders themselves. Following the Horsham decision, the Council of Mortgage Lenders issued its own voluntary statement to the effect that “In respect of mortgages secured against owner occupied residential properties CML members will not seek to sell a mortgaged property when the borrower is in default without first obtaining a court order for possession. In addition CML members will not appoint a receiver to sell a residential property without first obtaining a court order for possession”.
The draft Bill was published on 15th May 2009 and may be subject to critical review and amendment prior to and following its Second Reading on 26th June 2009. To monitor the progress of the Bill, see the UK Parliament website
Mortgages – presumed undue influence – overriding interests
Mortgage Business v Foy and Thompson [2009] EWHC 1076 (Ch)
Summary
It may be possible to establish an overriding interest based on a ‘mere equity’ – a right to set aside a transaction for undue influence – but where the right depends on the misappropriation of the mortgage monies, and so only crystallises after completion of the mortgage, it will not bind the lender.
Facts:
This is a complicated family property transaction which inevitably turns on its own particular facts.
Following the death of her husband, Mrs T became the sole owner of a property. She lived there with her daughter and son in law Mr & Mrs F and their children. Mr & Mrs F built a substantial extension. It was common ground that this belonged to Mr & Mrs F, and had been valued at £200,000. Mr & Mrs F were looking to raise money to buy a property in Spain.
The plan was as follows (as found by the judge):
· Mrs T would transfer the property to Mrs F
· Mrs F would become entitled to £200,000 by way of variation of Mr T’s will
· Mrs F would raise £400,000 on mortgage
· Mrs F would pay £200,000 to Mrs T
· The property would be rented out to cover the mortgage payments
· Mrs F would use her £200,000 to buy a property in Spain which would be large enough to accommodate Mrs T
Ultimately this was achieved by (1) a deed of gift of the property from Mrs T to Mrs F entered into in January 2007 as a result of which Mrs F was registered as sole proprietor at HM Land Registry, and (2) a subsequent mortgage entered into by Mrs F with TMB in April 2007 which was also registered at HM Land Registry.
The arrangements broke down when Mr & Mrs F failed to pay any monies to Mrs T.
The property was subsequently left empty and the mortgage went unpaid as a result of which TMB repossessed the property and obtained a money judgment against Mrs F.
Mrs T then sought to set aside the deed of gift on the basis that the transaction had been procured by undue influence by Mr & Mrs F, and that since she had remained in actual occupation at the time, her right to set aside the transaction gave her an overriding interest which had priority over TMB’s mortgage.
Held:
The court had to determine a number of issues:
(1) The nature and extent of Mrs F’s beneficial interest in the property. Mrs F’s claim was based on proprietorary estoppel. The court directed itself in accordance with the recent House of Lords authority on proprietary estoppel in a domestic context – Thorner v Majors [2009] 1 WLR 776 and held that there had been a ‘clear enough’ assurance that the extension would belong to Mrs F, and that on the facts, the minimum equity to do justice was to vest the beneficial interest in the extension in Mrs F.
(2) Whether Mrs T was entitled to set aside the Deed of Gift on the ground of undue influence. The court directed itself in accordance with the principles in Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773 and subsequent cases including Turkey v Awadh [2005] 2 P & CR 29. In respect of the presumption of undue influence, although the relationship was one of closeness and mutual trust between Mrs T and her daughter, including a degree of reliance, it was not a relationship in which Mrs T entrusted her financial affairs to Mrs F. Following the death of her husband, Mrs T had been able to deal with administrative and financial matters herself and she recognised that the transaction involved a degree of risk. As to whether the transaction called for an explanation, on close inspection, it was readily explicable according to ordinary motives upon which people act. The apportionment of values had been arrived at in good faith and the transaction involved material benefit to Mrs T in that she was to be accommodated in the property in Spain and have sufficient cash to buy her own property. Indeed Mrs T acknowledged in evidence that if she had received the £200,000 she would not have impugned the transaction. The fact that the promise to pay the £200,000 had not been secured was referable to the kind of trust in play between a mother and daughter.
On the facts there was no case of actual undue influence either. There were no details of any acts of overt persuasion, emotional blackmail or bullying.
In any event, Mrs T received clear legal advice from a solicitor – both orally and in writing. She was advised about the risks but intended to go ahead.
(3) The court nonetheless went on to consider whether, if Mrs T was entitled to set aside the transaction on the ground of undue influence, it would have been binding on TMB. This turned on the provisions of the Land Registration Act 2002. In particular s 29(1) provides that a if a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration. But s 29(2) provides that the priority of an interest is protected if the interest falls within one of the paragraphs Schedule 3, paragraph 2 concerns an interest belonging at the time of the disposition to a person in actual occupation, subject to certain exceptions including at (b) an interest of a person of whom inquiry was made before the disposition and who fails to disclose the interest when he could reasonably have been expected to do so, and (c) an interest (i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and (ii) of which the person to whom the disposition is made does not have actual knowledge at the time.
As a matter of construction, the court was of the view that s 29 suggests there must be actual occupation both at the date of the disposition and at the date of registration, but recognised that there were contrary views in Ruoff & Roper’s Registered Conveyancing and Gray & Gray on Land Law. Consequently the court decided to leave the point open.
On the facts, as at the date of the mortgage, Mrs T had only been in actual occupation of her part of the (original) property – not the extension – but was no longer in actual occupation by the time of registration.