Btl Repossesion Without Court Order Lawful

[Guest happy?]

I've posted many times before saying that courts view BTL as a business and therefore treat the sale of property very differently from private individuals who fall into arrears. Here's the latest:

The Times reports the case of GMAC who repossessed a BTL property without bothering with the nicety of a court order for possession:

http://www.timesonline.co.uk/tol/money/pro...icle5123319.ece

Debt charities have criticised a High Court ruling, which has given mortgage lenders the green light to repossess homes of customers without needing to apply for a court order.

The High Court supported a decision by GMAC-RFC, the mortgage lender owned by troubled US car giant General Motors, to take control and sell off the property of a borrower who had fallen into arrears. It confirmed that mortgage lenders can sell a property if a borrower falls just two months behind with payments, without needing to seek a repossession order from the courts.....

....The case dates back to 2006 when GMAC-RFC appointed receivers after the borrower fell into arrears. The receivers subsequently sold the property at auction and it was passed to Horsham Properties, who won an eviction order last month against the former homeowners.

A spokeswoman for GMAC-RFC insisted that it if it was a residential home loan it would not have called in receivers. However, it said that in the case of buy-to-let loans there was a long-established precedent of calling in receivers when borrowers fell into arrears.

Meanwhile, the Ministry of Justice said the Horsham case confirmed a long standing right of a mortgage lender to sell a property without a court order, which dates back to 1925. However, it said such cases were rare because borrowers cannot generally be required to leave the property without a court order.

[Liquid Goldfish]

already four other threads on this

[Guest happy?]

already four other threads on this

Missed them - anything intelligent or the usual speculation?

[okaycuckoo]

This case is not a shock - in fact it underlines the essence of a mortgage: the lender can call in its security any time it likes. Borrowers think they own the home, but they don't - it's the lender's security.

That was the situation before 1970, when parliament put a brake on lenders by providing for suspended possession orders. The legislation didn't alter the nature of the contract or security - it just limited the lender's right to realise its security.

What's happened here is that the borrower went in to default, and the lender invoked the receivership clause in the contract (not seeking possession) and then had the receiver sell the property on to a third party who then took independent action for trespass in order to secure possession. Perfectly legit, but a bit of a roundabout way of doing things.

Two crucial points:

- the sale price covered the redemption figure, so the security was realised, so there was no mortgage left, so the 1970 Act couldn't be relied on by the borrower; if the redemption figure wasn't covered, then the lender runs the risk of being sued by the third party because the mortgage is still in place (I suppose the lender could forgive the shortfall and call an end to it);

- this could happen with any kind of mortgage that has a receivership clause in it, even for OOs.

I don't see this as a trend, given the neg eq situation we're heading in to. But if parliament sticks its nose in we can assume unintended consequences for future lending. Believe it or not, they cocked up the 1970 legislation and had to fix it in 1973! Plus ca change ....

[the end is a bit nigher]

I've worked with some of these lenders and it won't just be GMAC who start to repossess. However, as they say, it will be those with commercial loans rather than residential loans.

[Qplate]

already four other threads on this

Any link to previous posts???

[remorsefulbroker2]

This case is not a shock - in fact it underlines the essence of a mortgage: the lender can call in its security any time it likes. Borrowers think they own the home, but they don't - it's the lender's security.

That was the situation before 1970, when parliament put a brake on lenders by providing for suspended possession orders. The legislation didn't alter the nature of the contract or security - it just limited the lender's right to realise its security.

What's happened here is that the borrower went in to default, and the lender invoked the receivership clause in the contract (not seeking possession) and then had the receiver sell the property on to a third party who then took independent action for trespass in order to secure possession. Perfectly legit, but a bit of a roundabout way of doing things.

Two crucial points:

- the sale price covered the redemption figure, so the security was realised, so there was no mortgage left, so the 1970 Act couldn't be relied on by the borrower; if the redemption figure wasn't covered, then the lender runs the risk of being sued by the third party because the mortgage is still in place (I suppose the lender could forgive the shortfall and call an end to it);

- this could happen with any kind of mortgage that has a receivership clause in it, even for OOs.

I don't see this as a trend, given the neg eq situation we're heading in to. But if parliament sticks its nose in we can assume unintended consequences for future lending. Believe it or not, they cocked up the 1970 legislation and had to fix it in 1973! Plus ca change ....

Please educate me. I was always under the impression that the purchaser owned the property i.e. ther name is on Title Deeds. However the mortgage lender has used the property as security for the mortgage (therefore having a legal charge), thereby giving them quite extensive powers over discposal of the property in the case of default. Isn't this why (usually), a court has the final say on repossession? By the way, not questioning any thing else you've said as it's stuff I did't have a clue on. Thanks.

[Liquid Goldfish]

Any link to previous posts???

post 53 onwards

http://www.housepricecrash.co.uk/forum/ind...p;#entry1448044

http://www.housepricecrash.co.uk/forum/ind...showtopic=94521

http://www.housepricecrash.co.uk/forum/ind...showtopic=94542

http://www.housepricecrash.co.uk/forum/ind...showtopic=94518

[6538]

Two crucial points:

- the sale price covered the redemption figure, so the security was realised, so there was no mortgage left, so the 1970 Act couldn't be relied on by the borrower; if the redemption figure wasn't covered, then the lender runs the risk of being sued by the third party because the mortgage is still in place (I suppose the lender could forgive the shortfall and call an end to it);

- this could happen with any kind of mortgage that has a receivership clause in it, even for OOs.

I don't see this as a trend, given the neg eq situation we're heading in to. But if parliament sticks its nose in we can assume unintended consequences for future lending. Believe it or not, they cocked up the 1970 legislation and had to fix it in 1973! Plus ca change ....

The reason Sec.36 of the AJA couldn't be used was because there were no court proceedings which culd be stayed because the lender had simply taken possession without appying for an order. The new buyer wouldn't have anything to sue over as the money was paid to two recievers so overreaching the interests of the original owner - the mortgtage would have ended and their interest in the property would be transfered into any remaing monies, or they would be responsible for the outstading debt if there was any.

[PopGun]

They can't have it both ways!!

[jp1]

But...but...but it's not a business!

Its my pension!!!!

edit: Boo Fokin Hoo

Edited November 11, 2008 by jp1

[Har Fast]

The reason Sec.36 of the AJA couldn't be used was because there were no court proceedings which culd be stayed because the lender had simply taken possession without appying for an order. The new buyer wouldn't have anything to sue over as the money was paid to two recievers so overreaching the interests of the original owner - the mortgtage would have ended and their interest in the property would be transfered into any remaing monies, or they would be responsible for the outstading debt if there was any.

Thanks for clearing this up (and to you and others on the other threads).

One more question: Is there anything stopping lenders following the same course for any residential mortgage? Is the option of starting court possession proceedings entirely at the discretion of the lender?

[thedebtisreal]

But...but...but it's not a business!

Its my pension!!!!

edit: Boo Fokin Hoo

Very important point. A pension cannot be touched in a case of bankruptcy. Two missed payments and your BTL is gone.

I hope my landlord is cashflow positive.

[jp1]

Thanks for clearing this up (and to you and others on the other threads).

One more question: Is there anything stopping lenders following the same course for any residential mortgage? Is the option of starting court possession proceedings entirely at the discretion of the lender?

Nothing. The FT reported [yesterday?] that a 1925 court ruling allows lenders to reposses residential property, without court action

A landmark High Court ruling has paved the way for mortgage lenders to sell the homes of borrowers in arrears without seeking a court order, bypassing Gordon Brown’s efforts to make repossession a “last resort”.

The ruling, which the judge described as having “wide-ranging implications”, strongly reaffirms the statutory right of lenders under a 1925 law to sell a property independently after two mortgage payments are missed.

......

[FreeTrader]

As I understand it, unless there is a specific provision in the mortgage contract, you don't even have to miss a payment. From the moment the contract is signed, the mortgagee has the right to possession without a court order. It's an anomaly in UK law.

The relevant case is Ropaigealach v Barclays Bank Plc (1998) which was heard in the Court of Appeal. The judges accepted that the situation was anomalous, but felt that a ruling to overturn the existing status quo was beyond their judicial powers and would need legislation from Parliament.

Two relevant quotes from that case (my emphasis):

The Law Commission Report

25. The language of the section, as well as the circumstances in which it was enacted, lend strong support to the view expressed in the Law Commission Working Paper No 99 (1986), at para. 3.69:

“(a) The Court can exercise its discretion [under section 36 of the 1970 Act] only if the mortgagee applies to it for a possession order: technically, therefore, the mortgagee can deprive the mortgagor of protection by electing to seek some other means of enforcement.”

There is passage to the same effect in the Report which followed that Working Paper (Law Com. No 204) (1991) at para. 6.16:

“6.16 One of the consequences of the relationship created by the mortgage by demise and by the charge by way of legal mortgage is that it is the mortgagee and not the mortgagor who is entitled to possession of the property. Unless the mortgage deed expressly restricts the exercise of the right it is exercisable at any time for any (or no) reason; its exercise is not dependent on any default by the mortgagor, nor on any threat to the security. If the mortgagee prefers to obtain a court order for possession rather than obtain possession extra judicially the Court has power, if the property is a dwelling house, to withhold or delay the order on condition that the mortgagor remedies any default. Otherwise, the Court has no power to regulate the exercise of the right: it is a matter in which equity has consistently refused to intervene.”

And from Lord Justice Clark:

As Chadwick LJ has pointed out, and as is made clear in paragraph 6.16 of the Law Commission report which he has quoted, in the absence of a provision to the contrary in the mortgage, a mortgagee has a right of immediate possession (as the ink dries on the document). Although I suspect that many mortgagors would be astonished to discover that a bank which had lent them money to buy a property for them to live in could take possession of it the next day, Mr Scrivener (as I understand it) accepts that in the absence of an express provision in the mortgage and subject to his argument as to the true construction of section 36 of the 1970 Act, that is the position. Thus a mortgagee has an immediate right of possession just like the defendant landlord in the Stoke Poges case. So far as I can see it follows from that decision that, subject to any relevant statutory provisions, if a mortgagee chooses to take possession and moreover to do so by using reasonable force to remove the mortgagor there is nothing that the mortgagor can do about it.

I'm not aware that any change to the law has been made since, but please correct me if I'm wrong.

[6538]

Thanks for clearing this up (and to you and others on the other threads).

One more question: Is there anything stopping lenders following the same course for any residential mortgage? Is the option of starting court possession proceedings entirely at the discretion of the lender?

In theory yes, in practice probably not. If a lender can "peaceably enter" the property (basically, without breaking in or physically removing the occupants) then he has possession and a Court order is not required. He can simply sell the property according to the established rules of seeking a fair price, etc.

It would be very unlikely to work in the case of a residentional mortgage as the occupiors would still be in residence and even if they were out at work the house would be locked up so peaceable entry wouldn't be possible.

[6538]

Nothing. The FT reported [yesterday?] that a 1925 court ruling allows lenders to reposses residential property, without court action

It wasn't a 1925 ruling. It was under Sec.101 of the Law of Property Act 1925 and the right to possession only applies if the lender can "peaceably" enter.

[6538]

Nothing. The FT reported [yesterday?] that a 1925 court ruling allows lenders to reposses residential property, without court action

It wasn't a 1925 ruling. It was under Sec.101 of the Law of Property Act 1925 and the right to possession only applies if the lender can "peaceably" enter.

[Liquid Goldfish]

It wasn't a 1925 ruling. It was under Sec.101 of the Law of Property Act 1925 and the right to possession only applies if the lender can "peaceably" enter.

AFAIK the requirement to enter peaceably comes from the Crimial Law Act 1977, which is the same protection squatters get

so wouldn't basic trespasser possession proceedings as used against squatters get around this requirement to enter peaceably - if so a lender could use the power of sale followed by trespasser proceedings, thereby leaving the borrower with no defence even if the property is occupied

Edited November 11, 2008 by newdman

[Liquid Goldfish]

AFAIK the requirement to enter peaceably comes from the Crimial Law Act 1977, which is the same protection squatters get

so wouldn't basic trespasser possession proceedings as used against squatters get around this requirement to enter peaceably - if so a lender could use the power of sale followed by trespasser proceedings, thereby leaving the borrower with no defence even if the property is occupied

according to this analysis this seems to be what happened in the recent case highligheted by the OP

http://nearlylegal.co.uk/blog/2008/10/hors...ice-intervener/

so it looks like even if the house is occupied this procedure can be used - and it can apply to residential mortgages as well as BTL - the important point seems to be that the sale price must pay off the mortgage

The property was purchased by Horsham Properties Group Ltd (”Horsham”).

At this stage (a) the sale of the property had raised sufficient monies to discharge the mortgage and ( Mr Clark and Ms Beech were still in occupation of the property.

Having purchased the property, Horsham then issued trespasser proceedings against Mr Clark and Ms Beech, seeking to recover possession of the property. The effect of this was to bypass all the protections contained in the Administration of Justice Acts, something which had been found to be perfectly lawful by the Court of Appeal in Ropaigealach v Barclays Bank [2000] QB 263.

Edited November 12, 2008 by newdman

[Har Fast]

according to this analysis this seems to be what happened in the recent case highligheted by the OP

http://nearlylegal.co.uk/blog/2008/10/hors...ice-intervener/

so it looks like even if the house is occupied this procedure can be used - and it can apply to residential mortgages as well as BTL - the important point seems to be that the sale price must pay off the mortgage

So from a BTL-lender's perspective, the incentive is to move quickly to appoint a receiver and sell while the property is worth more than the mortgage?

[Edit: lousy spelling]

Edited November 12, 2008 by Har Fast

[Liquid Goldfish]

So from a BTL-lender's perspective, the incentive is to move quickly to appoint a receiver and sell while the property is worth more thank the mortgage?

it seems to be to me - my legal knowledge and skills are way out of date though - any current lawyers on here able to further clarify

[redgenieuk]

So from a BTL-lender's perspective, the incentive is to move quickly to appoint a receiver and sell while the property is worth more than the mortgage?

[Edit: lousy spelling]

Its way too late for that.

Worth more than the mortgage....

[Liquid Goldfish]

Its way too late for that.

Worth more than the mortgage....

yes, may soon be irrelevant

[6538]

according to this analysis this seems to be what happened in the recent case highligheted by the OP

http://nearlylegal.co.uk/blog/2008/10/hors...ice-intervener/

so it looks like even if the house is occupied this procedure can be used - and it can apply to residential mortgages as well as BTL - the important point seems to be that the sale price must pay off the mortgage

It depends upon what they actually mean by "occupied". Occupation does not require an actual physical presence at the property 100% of the time. For instance if you are on holiday you still clearly occupy your home because it is merely a temporary abscence.

If this was a BTL property that wasn't let out but had things belonging to the mortgagors in it, tools, appliances, etc - or even totally empty but they were maintianing it, insuring it, etc - then they would probably be held to be occupation, even though they had no intention to actually live there.

If it is possible to enter it without breaking the law then the mortgagor can do so and can take possession.