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After repossession

This content applies to England & Wales

Powers the court has 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 further statutory power to suspend the warrant.[1] The court does, however, still have the power to set it 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 called 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, eg mowing the lawn.

Lender's sale of the property

When the lender sells the property, it is under an equitable duty of care to take reasonable care to obtain the best price reasonably obtainable, which normally means the current market value of the property.[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 error margin. The Financial Conduct Authority (FCA) regulations 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]

Where the borrower can raise the money to redeem the mortgage before any exchange of contracts on the lender's sale, the court can restrain the lender from selling, although the borrower would have to begin separate proceedings for an injunction to stop a sale. Once the lender has entered into a contract for sale, it will be difficult for the borrower to prevent the sale going ahead.

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]

Most lenders will get at least two valuations to ensure a fair price and sell through an estate agent in the usual way. Where a property is sold by auction, this is usually considered sufficient to achieve a fair market price. 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.[6]

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.[7]

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.[8] 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.

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,[9] although on the facts of the case the occupants were evicted, 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
  • occupation by the borrowers would enhance or at least not depress the price
  • the borrowers would co-operate with the sale
  • the borrowers would give up occupation 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 persons no part of the original possession proceedings but closely associated with the borrower,[10] re-enter the premises without permission of the court, the lender can apply for a warrant of restitution in aid of warrant of possession in the county court,[11] or for a writ of restitution in aid of a writ of possession in the High Court,[12] without further notice.

The warrant/writ will allow the bailiffs/enforcement officers to evict any person in unlawful occupation of the premises without the lender having to issue a new claim for possession.

If after the execution of the warrant/writ of restitution, the borrower or associated person re-enter again 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.[13]

Lender applying for order for sale

In some situations the lender will be prevented from obtaining possession and therefore unable to sell the property as the mortgagee in possesion. 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. 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.

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

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

[8] FCA, MCOB 13.6.6.

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

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

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

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

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

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