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After repossession

This content applies to England & Wales

Powers of the court after repossession, the lender's responsibilities to the property and the lender's sale of the property.

Court's powers

Once the warrant or writ of possession has been executed and the borrower has been evicted, the court has no statutory power to suspend the warrant.[1] The court has the power to set the warrant aside if:

  • the original order for possession is set aside
  • the warrant or writ has been obtained by fraud
  • there has been an abuse of process or oppression in the execution of the warrant or writ. The actions of the lender and the court need to be scrutinised for unfairness that may amount to abuse of process or oppression.[2]

Lender's responsibilities while in possession

When the lender is in possession of the property, it is referred to as the 'mortgagee in possession'. The lender must take proper care of the property, for example by dealing with essential or emergency repairs, such as a leaking pipe. It may also undertake basic maintenance, such as mowing the lawn.

Lender's sale of the property

When the lender sells the property, it has an equitable duty of care to take reasonable care to obtain the best price reasonably obtainable.[3] The duty is not breached where the lender takes reasonable care to assess the market value and then sells at a price within a reasonable margin. The Financial Conduct Authority (FCA) mortgage conduct of business rules state the need to strike a balance between the need to sell the property as soon as possible and factors that may prompt the delay of the sale, such as market conditions.[4]

The borrower can ask the court for an injunction to prevent the lender's sale where the mortgage can be redeemed in full by other means. The court is likely to refuse to make an injunction if the lender and purchaser have already exchanged contracts for sale.

Where there is already a shortfall, the lender should not delay the sale if this would result in an increase in the mortgage debt and a worse financial position for the borrower.[5]

Lender's duty to obtain a reasonable price

Courts will not interfere with the sale unless the property is clearly undervalued, in which case it may be possible to seek an injunction to prevent the sale. The borrower can seek such an injunction even after exchange of contracts, but before completion.[6]

The High Court has given a useful summary of the lender's duty when marketing and selling a property with vacant possession.[7] There are no prescribed steps, it is for the lender to decide the manner of sale. The property should be properly advertised with sufficient frequency, although it is for the lender to decide the length of the marketing time. The lender is not required to improve the property for sale. However, they are obliged to advise prospective purchasers of potential such as planing permission. It is the responsibility of the borrower to prove negligence on the part of the lender and the fact that a higher price might have been obtained does not mean the lender has breached their duty to take reasonable care.

A sale to an associated company does not necessarily show a sale at an undervalue, but the lender then has the burden of showing that it had complied with its duty.[8]

Distributing the proceeds of sale

On completion of the sale, if the proceeds exceed the amount due (the mortgage debt, plus legal costs and sale fees), the lender must inform the borrower as soon as reasonably possible and pay them the difference.[9] If the sale proceeds are not sufficient to pay off the mortgage in full, the lender will have the option of pursuing the borrower for the difference (usually known as a 'mortgage shortfall'), as will the insurance company if it has had to pay out on a mortgage indemnity policy. For further details see the page on Dealing with a shortfall.

Even if the first change is paid in full there may be further legal and equitable charges on the property that result in a shortfall debt.

Borrower in occupation following repossession

In certain circumstances, the execution of the warrant can be suspended while the lender sells the property. In one case,[10] although on the facts of the case the borrowers were unsuccessful, the court found that the borrowers could remain in the property temporarily as long as:

  • the property was not required by the lender pending completion of the sale
  • occupation by the borrowers would enhance or at least not depress the price
  • the borrowers would co-operate with the sale
  • the borrowers would undertake to give up vacant possession to the purchasers on completion.

This may be the situation if, for example, the occupants had accepted that repossession was inevitable and were to be rehoused, and the mortgaged home was providing an alternative to other interim accommodation.

Warrant or writ of restitution

If after being evicted, the borrower, or other associated persons,[11] re-enter the premises without permission of the court, the lender can apply for a warrant of restitution in the county court,[12] or for a writ of restitution in the High Court,[13] without further notice.

The warrant/writ will allow the court's enforcement agents to evict any person in unlawful occupation of the premises.

If after the execution of the warrant/writ of restitution, the borrower or associated person re-enter the premises, the lender can apply to the court to commit the person who re-entered the property unlawfully to imprisonment for contempt of court. In one of such cases, an associated person with a borrower was imprisoned for a period of three months.[14]

Lender applying for order for sale

In some circumstances the lender will be prevented from obtaining possession through the CPR 55 route and therefore unable to sell the property as the mortgagee in possession. For example, this could arise where a third party has an overriding beneficial interest in the property, or where a borrower has used fraudulent means to resist repossession. This is also the case for an equitable mortgage, which can be created when the deed is improperly executed. In such situations, the lender may apply to court for an order for sale under the Trusts of Land and Appointment of Trustees Act 1996.[15]

[1] Cheltenham and Gloucester Building Society v Obi (1994) 28 HLR 22, CA; Mortgage Agency Services Number Two Ltd v Gurcharan Singh Bal [1998] 9 July, unreported, CA.

[2] Hammersmith and Fulham LBC v Hill (1995) 27 HLR 368, CA; see also Blemain Finance Ltd v Ridley (2012) Darlington County Court, Shelter's Housing Law Update November 2012.

[3] FCA, MCOB 13.6.1(2). Case law interpreting this duty includes South Australia Asset Management Corp v York Montague Ltd [1996] UKHL 10 and Michael v Miller [2004] EWCA Civ 282.

[4] FCA, MCOB 13.6.2.

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

[6] Shercliff v Engadine Acceptance Corporation Property Ltd [1978] 1 NSWLR 729.

[7] Aodhcon v Bridgeco Lted [2014] All ER (D).

[8] Mortgage Express v Mardner [2004] EWCA Civ 1859.

[9] FCA, MCOB 13.6.6.

[10] Cheltenham and Gloucester plc v Booker (1997) 29 HLR 634, CA.

[11] Wiltshire CC v Frazer [1986] 1 All ER 65.

[12] r.83.26 Civil Procedure Rules 1998, as amended.

[13] r.83.13 Civil Procedure Rules 1998, as amended.

[14] Governor & Company of the Bank of Ireland v Shah and another [2014] EWHC 4839 (QB).

[15] s14 & s15 Trusts of Land and Appointment of Trustees Act 1996

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