Lenders Could Bypass Legal System

[sleepwello'nights]

What are your thoughts and opinions on this decision reported in this mornings FT.

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. The ruling wihich 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.

[sleepwello'nights]

What are your thoughts and opinions on this decision reported in this mornings FT.

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. The ruling wihich 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.

[Jason]

Do you have a link?

[19 year mortgage 8itch]

Do you have a link?

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

[A.steve]

Do you have a link?

This:

http://www.ft.com/cms/s/0/76031846-aea9-11...00779fd2ac.html

I presume.

[patprimer74]

Lenders Could Bypass Legal System

The whole point, surely, is that the lenders are within the law!

As a saver (and, by the way, there are 5 savers for every 1 borrower) I want the bank that I have my hard-earned money with to act swiftly and decisively to recover their/my money from recalcitrant borrowers. Nothing is usually achieved by delay - in fact, in a dropping market, matters just get worse by holding back.

If I find that the bank I have my savings with is slow in collecting it's bad debts, I'll move my money elsewhere - I'd be daft not to. 'Non performing' loans are no good to man or beast.

p

[Unexpected]

The whole point, surely, is that the lenders are within the law!

As a saver (and, by the way, there are 5 savers for every 1 borrower) I want the bank that I have my hard-earned money with to act swiftly and decisively to recover their/my money from recalcitrant borrowers. Nothing is usually achieved by delay - in fact, in a dropping market, matters just get worse by holding back.

If I find that the bank I have my savings with is slow in collecting it's bad debts, I'll move my money elsewhere - I'd be daft not to. 'Non performing' loans are no good to man or beast.

p

Dont tell me you've finally decided that common sense is the way forward.

On the other hand maybe you could get an interesting reaction posting that on MSE

[6538]

What are your thoughts and opinions on this decision reported in this mornings FT.

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. The ruling wihich 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.

Do you have link to the judgement, or even the story?

This is not new, as your quote points out, as a lender has always had the right the peaceably enter a mortgaged property under the provisions LPA 1925. Hardly a "Landmark" decision. However, they still need court orders to get you out as they have no right simply to kick you out by force.

[Warwick]

Nothing new in this judgment, except that the Human Rights defence did not fly either.

[6538]

The former homeowners, who had a buy-to-let mortgage, were then evicted for trespassing by the new owner, Horsham Properties. The sale circumvented the court process through which judges can give struggling borrowers more time to arrange repayments. There are no plans for appeal.

In his ruling, Mr Justice Briggs also suggests the borrowers lost their equity when they fell into arrears, although it is unclear whether they were entitled to the balance of the sale proceeds once the debt was cleared.

This is clearly business borrowing not residential borrowing. The properties were obviously unnoccupied when they bank took them back through their rights to peaceable entry. The borrower is definately entitled to any residual money from the sale.

GMAC said it “frequently exercised” its power of sale with buy-to-let borrowers who breached contractual terms.

As is their right.

But it said “a receiver would not have been appointed” in the case of a residential home loan, even though the judgment confirmed the power of all mortgage lenders to do so.

True. Recievers are almost never used for residential repo's. They are more of a buisiness thing.

Lawyers have responded with ”astonishment” and called for new laws as a “matter of urgency”.

John Gallagher, principal solicitor with Shelter, the housing charity, said the case “gives the green light” for lenders to sidestep courts with legal remedies “rooted in the 19th century and repugnant to most people’s sense of justice”.

Spin. I don't believe for a minute that any Lawyer, let alone a housing specialist, does not know about a mortgagee's right to enter and take possession.

“It is quite incredible in the 21st century that the law allows the lender to choose whether or not to take possession proceedings and that the borrower then becomes a trespasser in his or her own home,” he said.

Why? House standing empty, no sign of owner, not secured, why is it wrong for the lender to enter the property to ensure his security is intact?

I'd like to havea read of the actual judgement, if anyone has a linky?

[6538]

Nothing new in this judgment, except that the Human Rights defence did not fly either.

The HR defence would never work because you would have to show that the right of entry interfered with your rights to enjoy your property and that the right of entry was a disproportunate interference. It could never be disproportunate to enter an empty property with a view to realising your security.

[FreeTrader]

I'd like to havea read of the actual judgement, if anyone has a linky?

Judgment by Mr Justice Briggs, 8th October 2008

[patprimer74]

Dont tell me you've finally decided that common sense is the way forward.

On the other hand maybe you could get an interesting reaction posting that on MSE

I don't understand either of your comments. Care to elaborate?

p

[why me]

... with to act swiftly and decisively to recover their/my money from recalcitrant borrowers.

What, like Her Majesty's Labour Government?

[Guest tbatst2000]

I don't understand either of your comments. Care to elaborate?

p

This is not the thread you're looking for, I suggest you try this one instead.

[Liquid Goldfish]

Nothing new, as other have said - don't know why the Shelter guy is reacting so strongly

It applies to all mortagages - residential and BTL - and whether someone is living there or not

The lender has a "power of sale" under the LPA 1925 when 2 payments are missed - the lender simply sells from under the borrower and the new buyer takes free of the mortgage and any other mortgages that have less priority - the court has no power to prevent this - the new buyer then gets an automatic right to evict the borrower

it's rarely if ever used with residential mortgages where lenders instead follow the alternative court possesion procedure which gives the judge the power to prevent possession under s36 Admin of Justice Act 1970 - but it could be used for residential mortgages if lenders wanted

Edited November 10, 2008 by newdman

[DEATH]

"Clause 11.2 sets out a series of events of default giving rise to an immediate obligation on the borrower to repay the mortgage debt immediately. Those events include:

i) If the borrower fails to make one monthly payment or more when it is due;"

I have heard of a few mortgage companies not taking a direct debit some months due to their dodgy IT departments....

If you don't notice it you could have your house auctioned the following week!

[6538]

Reading the judgement and just wanted to pick up on the following point from the FT report which I mentioned befopre;

"In his ruling, Mr Justice Briggs also suggests the borrowers lost their equity when they fell into arrears, although it is unclear whether they were entitled to the balance of the sale proceeds once the debt was cleared."

This is misleading because the reporter either dosen't undertand or hasn't read the judgement.

In the case at hand the "equity" that is mentioned here isn't equity as we wouldn't normally refer it it - ie; the residual value of the house after the mortgage has been paid off but, rather, it refers to the Mortgagors equitable right to redeem the mortgage (to pay it off) at any time. What the Court is saying is that once the morgagee contracts to sell the property to another party then the equitable right to settle the debt and regain the property is gone - not the right to the residual value.

The relevant paraph is;

"No description of Miss Beech's rights as mortgagor would be complete without mention of the mortgagor's inherent right to redeem, that is, to recover full legal and beneficial ownership of the mortgaged property, and a discharge of the mortgage, on payment of all that is due to the mortgagee. Leaving aside the technical differences between legal and equitable rights to redeem (which do not matter for present purposes) I shall refer to it as the mortgagor's equity of redemption. It constitutes an interest in the mortgaged property and, in terms of value, is the principal element of that which the mortgagor retains after the grant of the mortgage. Thus when a house owner describes herself as having an equity of £300,000 in a property worth £500,000 mortgaged to secure a debt of £200,000, it is strictly the equity of redemption to which the owner refers. While it is true that the mortgagor of registered land remains the registered proprietor during the subsistence of the mortgage, it is wrong in substance to describe the rights of such a mortgagor as tantamount to freehold ownership. For example, the equity of redemption is overridden once the mortgagee contracts to sell the mortgaged property in exercise of the statutory power of sale, or when a receiver, duly appointed under the mortgage contracts to sell the mortgaged property, whether on behalf of the mortgagor or mortgagee, pursuant to powers given by the mortgage itself. In the present case Miss Beech's share in the equity of redemption was lost when the receivers contracted to sell to Coastal pursuant to their powers contained in the Mortgage, rather than when, as agents for GMAC, they later transferred the Property to Coastal on completion. "

[Guest tbatst2000]

This is misleading because the reporter either dosen't undertand or hasn't read the judgement.

Depressing isn't it? Almost always when you do some research and try and verify what's in a press article it turns out to be at least partially incorrect. The FT's one of the more careful publications too.

[sleepwello'nights]

Thanks for the link to the judgement. I hadn't seen the previous posting on this topic. On an earlier posting I made suggesting that lenders in some way took ownership and control of properties where the borrower defaulted a number of objections were raised. The main objection centred on the mortgagor being able to reinstate their interest in the property. As I interpret the exposition of the law as detailed in this judgement where the mortgagee has gained ownership after the mortgagor's default then the mortgagor has lost any future claim to the property.

The thrust behind my argument was that if lenders didn't put repossessed properties up for sale causing a glut and a consequent fall in prices then a floor could be placed under house prices and restore stability to the economy. The lender would also benefit from a potentially better sale price in the future. There would be less social dislocation and distress caused to the occupier. Not only are owner occupiers evicted on repossession but also tenants.

Am I just being naive?

BTW I liked a solution proposed by a commentator in the US: instead of giving the "bailout" money to the lending institutions that it should be given to all American taxpayers - $85 Billion / 170 million taxpayers = $500,000 each to spend or save as they wished.

so in the UK £ 37 Billion / 37 million taxpayers = £1,000.000 each.

[FreeTrader]

Reading the judgement and just wanted to pick up on the following point from the FT report which I mentioned befopre;

"In his ruling, Mr Justice Briggs also suggests the borrowers lost their equity when they fell into arrears, although it is unclear whether they were entitled to the balance of the sale proceeds once the debt was cleared."

This is misleading because the reporter either dosen't undertand or hasn't read the judgement.

In the case at hand the "equity" that is mentioned here isn't equity as we wouldn't normally refer it it - ie; the residual value of the house after the mortgage has been paid off but, rather, it refers to the Mortgagors equitable right to redeem the mortgage (to pay it off) at any time. What the Court is saying is that once the morgagee contracts to sell the property to another party then the equitable right to settle the debt and regain the property is gone - not the right to the residual value.

[snip]

It's a pity this separate thread was started when another discussing the case was already on the board.

Are you absolutely sure that the FT journalist has misinterpreted the judgment, 6538? From reading section 22 it seems the judge is arguing that "equity of redemption" is equity as we understand it.

For example, suppose you buy a house for £200K on 100% mortgage. It doubles in value to £400K, but you default on payment. Since you do not have freehold ownership of the property, why is it that you have the right to the gain in freehold value when the property is sold by the mortgagee?

[6538]

"Clause 11.2 sets out a series of events of default giving rise to an immediate obligation on the borrower to repay the mortgage debt immediately. Those events include:

i) If the borrower fails to make one monthly payment or more when it is due;"

I have heard of a few mortgage companies not taking a direct debit some months due to their dodgy IT departments....

If you don't notice it you could have your house auctioned the following week!

Nope, look at the language "If the borrower fails to make one monthly payment ....". If the lender has failed to request the funds from the borrowers bank then I doubt very much that it could be said that the borrower has "failed" to make the payment.

Besides, they could never sell in that short a time as they would jave great difficulty showing that they had achieved a proper price for it.

Edited November 10, 2008 by 6538

[6538]

Thanks for the link to the judgement. I hadn't seen the previous posting on this topic. On an earlier posting I made suggesting that lenders in some way took ownership and control of properties where the borrower defaulted a number of objections were raised. The main objection centred on the mortgagor being able to reinstate their interest in the property. As I interpret the exposition of the law as detailed in this judgement where the mortgagee has gained ownership after the mortgagor's default then the mortgagor has lost any future claim to the property.

Bloody computers, already lost this reply once so here goes again.

The mortgagee does not obtain ownership it obtains possession. Ownership still remains with the mortgagor.

If it applies for a Court order for possession then those proceedings can be delayed upon application of the mortgagor under Sec.36 AJA 1970. If it simply enters and takes possession there is no Court proceedings so possession can't be delayed.

The mortgagor can always get the property back after possession by paying off the amount outstanding at any time, right up until the mortgagee contracts to sell it to someone else. This was one of the problems in the previous thread about banks renting out repo's. If the mortgagor comes along in a couple of years with cash to pay the debt off then the bank can't refuse to accept it and close the mortgage.