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Selling the home before mortgage repossession

This content applies to England & Wales

The situation where the borrower wants to sell the property, either during or after possession proceedings.

Borrower seeks to sell property before possession order 

The borrower may wish to sell the property her/himself to obtain a better price, even if a possession order has been granted. Courts are more likely to agree to allow time for a sale to be completed if the borrower can show that s/he has already received a firm offer for the property, but it is a question of fact for the court in each case whether the borrower will be able to sell within a reasonable period, which could be anything up to 12 months.[1] In one case, the Court of Appeal suspended a possession order for only three months to enable the borrowers to try to sell the property.[2] Everything is likely to depend on the facts of the individual case. Key factors are:

  • how long the property has been on the market
  • the amount of the outstanding mortgage (including arrears)
  • what the property is worth
  • how long it is going to take to sell it
  • whether the borrower is in a position to pay some or all of the mortgage instalments pending sale
  • whether the market is rising or falling
  • whether there is a risk that the lender will be disadvantaged if the borrower is given time to sell.

Lenders' representatives sometimes argue that borrowers should not be allowed any time to sell and have successfully persuaded some district judges that they should not allow a borrower time to sell. They tend to base their argument on a Court of Appeal decision[3] which held that, unless there is firm evidence of a sale about to be completed, the court would not prevent the lender from enforcing its remedy of gaining possession and exercising its power of sale.

The approach to be preferred is that of the Court of Appeal in Ellis,[4] where the Court said that the court must be shown some evidence:

  • of the likelihood of a sale
  • that the proceeds of the sale would discharge the debt, and
  • that the period within which such a sale was likely to be achieved was reasonable, having regard to the circumstances in the individual case.

Lender seeks to stop a sale

There are limited circumstances where a borrower wishes to sell her/his property but the lender wants to stop the sale. Usually, the sale cannot proceed without the lender's consent, and a simple refusal will obstruct the sale. If the mortgage will be paid in full (redeemed), the lender cannot refuse, so the circumstances in which the lender may refuse are limited. Before repossession this may happen, for example, where there is negative equity. It can also happen after repossession, for example where the lender takes possession of the property following exchange of contracts but before completion of a sale.

In this situation the borrower may apply to the county court for an order for sale under section 91 of the Law of Property Act 1925 (for sole owners) or section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (for joint owners). The court has wide discretion as to whether to make an order for sale, and, if so, on what terms.[5] It is much less likely that the court will make an order for sale if the lender has already obtained a possession order. The court cannot make an order for sale at a price that will not pay the mortgage in full, if the lender is seeking to enforce a possession order.[6]

[1] National and Provincial Building Society v Lloyd [1996] 1 All ER 630, CA.

[2] Target Home Loans v Clothier [1994] 1 All ER 439, CA.

[3] Mortgage Service Funding PLC v Steele [1996] 72 P&CR D40.

[4] Bristol and West Building Society v Ellis [1996] EG CS 74, CA.

[5] Palk v Mortgage Service Funding [1993] 2 All ER 481, (1992) 25 HLR 56, CA.

[6] Cheltenham and Gloucester plc v Krausz [1997] 1 All ER 21, CA.

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