Duties and rights after eviction by mortgage lender

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]

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.

When the lender sells the property, it has an equitable duty to take reasonable care to obtain the best price reasonably obtainable.[3] The duty is fulfilled 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 and the price is reasonable.

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 apply for an injunction to prevent the sale. The borrower can apply for an injunction after exchange of contracts, but before completion.[6]

Exchange of contracts is the point at which the sale becomes legally binding and neither side can pull out of the sale without financial penalty. Completion is the final stage of the sale, at which the balance of the payment for the property is transferred to the seller and the new owners get the keys.

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 planning permission. 

It is the responsibility of the borrower to prove negligence on the part of the lender. 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 has 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.

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

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 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.

If after being evicted, the borrower or other associated people re-enter the premises without permission of the court,[11] the lender can apply with permission of the court 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 or 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 or 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]