Seminar Notes 07.06.06 - Surinder Bhakar

The mortgagee or lender is entitled to possession the moment the mortgage has been executed, in the absence of any contractual or statutory right, as a mortgage operates by way of legal demise.

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"The right of the mortgagee to possession in the absence of some specific contract has nothing to do with default on the part of the mortgagor. The mortgagee may go into possession before the ink is dry on the mortgage unless by a term expressed or necessarily implied in the contract he has contracted himself out of that right. He has the right because he has a legal term of years in the property." Fourmaids Ltd v. Dudley Marshall (Properties) Ltd (1957) 2 All ER 35 at 36.

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At common law the power of the court to adjourn an order for possession in a mortgage case is limited to a short period enabling the borrower to redeem the mortgage by paying the loan in full (Birmingham Citizens Permanent B.S. v. Caunt (1962) 1 All ER 163 at 182 and Western Bank Ltd v. Schindler (1976) 2 All ER 393), except where the lender is legally entitled to go into possession as of right and has not taken proceedings (Seoirse Tebhar Ropaiegealach v. Barclays Bank Plc 4 All ER 235).

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However, the legislature has given the court extensive discretionary powers to adjourn proceedings, stay or suspend execution of the judgement or postpone the date for possession where a lender is seeking to recover possession of residential premises. There are even greater powers in Consumer Credit Act cases.

Consumer Credit Cases:

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Where the loan was made pursuant to a consumer credit agreement that is a ‘regulated agreement’ the court’s powers to prevent an immediate order for possession will be governed by the Consumer Credit Act 1974 (CCA 1974) rather than the AJA 1970 (see the Consumer Credit (Increase of Monetary Limits) (Amendment) Order 1998 SI 1998/996 and Section 38A of the AJA 1970). An agreement can only be a regulated agreement if the loan is for £ 25,000. (£ 15,000. if the agreement was entered into prior to 1 May 1998) or less and the agreement is not an exempt agreement. It should be readily apparent from the documentation whether or not the agreement is a regulated agreement. (For the substantive law see Goode on Consumer Credit: Law and Practice).

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Where the CCA 1974 applies the lender must serve a ‘default notice’ in prescribed form (Consumer Credit (Enforcement Default and Termination Notices) Regulations 1983 SI 1983/ 1561 as amended SI 1984 /1109 pursuant to sections 87 and 88 of the CCA 1974). If he does not do so, the lender will not be able to enforce his security or terminate the agreement or demand earlier payment of any sum (Section 87). Under Section 89 if the borrower complies with the requirements of the default notice he is treated as not being in default. If the borrower fails to comply with the default notice the lender must take court proceedings if he wishes to enforce his security.

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In outline, the key procedural provisions of the CCA 1974 are:

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Section 87 Need for default notices

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Section 88 Contents and effect of default notice

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Section 89 Compliance with default notice

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Section 176 Service of documents

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Section 176A Electronic transmission of documents

Matrimonial Homes

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The claimant must carry out a search at the Land Registry (Land Registry Form MH3), unless the defendants are husband and wife who are joint mortgagors, to ascertain whether any notice or caution has been registered or in the case of unregistered land, at the Land Charges Department to ascertain whether any Class F land charge has been registered, to protect the rights under the Matrimonial Homes Act 1967, or Section 1 of the Matrimonial Homes Act 1983 or the Family Law Act 1996.

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If the search reveals any such rights the details must be set out in the particulars of claim and the result of the search must be attached to the pleading or exhibited to a witness statement in support. The particulars of claim will also need to be served on the protected spouse (Section 56 (2) of the 1996 Act and CPR PD 55.4 para 2.5).

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The non-owning spouse may apply to the court to be made a party before the action is ‘finally disposed of in the court;. The court can refuse to make him or her a party if it is not satisfied that the non-owning spouse can satisfy the borrower’s liabilities and obligations (Section 55 of the 1996 Act). (See further Sections 54 to 56 of the Family Law Act 1996).

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Jurisdiction

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The County Court has jurisdiction to hear all claims for possession whatever the rateable value of the premises (Section 21 (1) of the County Courts Act 1984 (as amended). It has exclusive jurisdiction in mortgage possession claims where the land consists of or includes a dwelling-house situated outside Greater London (Section 21 (3) except where the claim for possession is made in action for foreclosure or sale (Section 21 (4)).

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Generally, the mortgagee only makes a claim for possession. It does not need to make a money claim because its intention is usually to sell the property and then to take all sums due from the proceeds of sale. However, the lender may wish to make a money claim in addition to possession, if the value of the property is less than the total of the sums owed. If so, the lender may do so pursuant to the court’s unlimited jurisdiction in contract (Section 15 of the County Courts Act 1984).

CCA Cases

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Where the agreement secured by the mortgage is a regulated agreement within the meaning of the Consumer Credit Act 1974 (CCA 1974) the proceedings must be brought in the county court (Section 21 (9), 141 of the CCA 1974). If they are commenced in the High Court the claim will not be struck out (Sovereign Leasing v. Ali (1991) The Times, March 21) but will be transferred to the county court (Section 141 (1) (2) of the CCA 1974).

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Procedure

Venue

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The general rule is that proceedings must be commenced in the county court for the district in which the land is situated (CPR 55.2 and 55.3).

Commencement of Proceedings

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To issue proceedings, the lender must file the following documents with the court:

A claim for the possession of property – Form N5.

The particulars of claim – Form N120.

If appropriate, a certificate stating why the claim has been commenced in the High Court.

The court fee.

Copies must be filed for each Defendant (CPR 6.3) and a further copy if the Claimant’s search has shown that there is a person who is required to be served in accordance with Section 56 (2) of the Family Law Act 1996.

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The court will fix a date when it issues the claim form at which it will either decide the claim or make case management directions (CPR 55.5 and 55.8).

Second Mortgagee

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If the proceedings are proposed to be taken by a second mortgagee, a letter should be written to the first mortgagee asking whether he has already obtained an order for possession and whether he has any observations to make on the proposed application. A copy of the letter and any reply should be produced at the hearing. If there is more than one prior mortgagee similar letters should be sent to them all.

The Particulars of Claim

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CPR 55 and PD 55.4 Para 2.1 and 2.5 set out the rules relating to particulars of claim.

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The key points are as follows:

In all mortgage possession claims where the land consists of or includes a dwelling the particulars of claim must be in prescribed form (CPR PD 55.3 para 1.5, Form N120). The form is to be used where the mortgage secures a regulated consumer credit agreement and in cases where it does not do so (para 4). The particulars of claim must state whether or not the agreement is a regulated consumer credit agreement (CPR PD 55.4 para 2.5 (4).

The particulars of claim will be sent with the Defence Form to Mortgaged Residential Premises (N11M) and Notes for the Defendant (Form N7).

The claimant must give details of the defendant’s financial and other circumstances so far as they are known to it and must state whether the claimant is paid interest or arrears direct under social security regulations and, if so, how much (CPR PD 55.4 para 2.5 (6)). Relevant information might include the defendant’s age, marital and family circumstances, his occupation and any physical or mental handicap.

The claimant must state that they will serve notice of the claim on persons on whose behalf a land charge is registered (under Matrimonial Homes Act 1967), or notice is registered or entered (under Matrimonial Homes Act 1983 or Family Law Act 1996) – CPR PD 55.4 para 2.5 (1).

Evidence in Support

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The claimant will be able to prove his claim by evidence in writing, unless the claim is allocated to the Fast or Multi Track or the court orders otherwise. The claimant could include all evidence relied upon in the statement of case, verified by a statement of truth and update the amount of the arrears and interest either in writing or orally at the hearing (CPR 55.8 and CPR PD 55.8 para 5.1 and 5.2).

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Essential matters and documents which must be included in either the particulars of claim or a witness statement in support are the following:

A copy of the charge certificate (CPR PD 55.8 para 5.5).

A schedule detailing the accrual of current arrears and interest.

Service of a notice ‘to the occupiers’ pursuant to CPR 55.10 and exhibit copy of the notice.

Office copy entries (or original charge) – CPR PD 55.8 para 5.5.

If the mortgage incorporates standard mortgage conditions, those conditions (only the relevant sections need be attached to the particulars of claim, but the full conditions must be available at the hearing).

The ‘offer letter’ if that document rather than the mortgage contains particulars of the advance, the term of the loan, the rate of interest or the amount of instalments.

Unless the defendants are husband and wife who are joint mortgagors, an up to date certificate of search from the Land Registry or in the case of unregistered land from the Land Charges Department.

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Relevant documents can be attached to the particulars of claim and if verified by a statement of truth will be admissible as evidence (CPR PD 16 para 8.3). Originals of the documents should be brought to the hearing.

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When the court fixes a date for the hearing a notice of hearing (possession claims) will be sent out notifying the parties of the date of the hearing and reiterating that any evidence must be filed with the court and served on the other parties at least 2 clear days before the hearing (CPR 55.8 (4).

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Payment of Arrears after Commencement

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Where the borrower pays the arrears after the commencement of the claim the lender should not withdraw the proceedings but adjourn the claim generally. If arrears accrue again the claim can be restored without the necessity of commencing fresh proceedings (under the court’s general powers of case management under CPR 3).

Service of the Proceedings

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Service of the proceedings may be effected in the same way as for proceedings against a tenant. In Alliance B.S. v. Yap (1962) 1 WLR 857 it was held that service effected on one of two joint borrowers where one borrower was not resident at the mortgaged property and whose whereabouts were unknown was good service and an order for possession could be obtained.

Notice to Occupiers

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In addition to the ordinary service of the proceedings on the defendants, notice of the proceedings containing certain details of them is required to be sent to the property addressed to the occupiers not less than 14 days before the hearing. A copy of that notice and evidence of service must be produced at the hearing (CPR 55.10).

Defendant’s Response

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When the defendant receives the particulars of claim he will also be sent a form by the court entitled, Defence form (Mortgaged residential premises) N11M and Notes for Defendant N7. It is very important that this form is completed by the defendant. It contains a large number of questions designed to assist the court in determining whether or not to make an order for possession and whether or not to exercise its discretionary powers to suspend orders or grant other relief.

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The reply form includes the question: Do you want the court to consider whether or not the terms of your original loan agreement are fair ? This relates to the court’s powers to re-open ‘extortionate credit bargains’ under Sections 137-140 of the CCA 1974. A credit bargain is extortionate if it requires the debtor or a relative of his to make payments which are grossly extortionate or if it otherwise grossly contravenes ordinary principles of fair dealing (Section 138 (1)). If the defendant does wish to re-open the agreement an application can be issued and served making it clear that this is what he wishes to do and setting out the grounds upon which the defendant wishes to re-open the agreement. It is to be noted that the burden of proof is on the creditor to show that the agreement is not extortionate (Section 171 (7) of the CCA 1974 and CPR PD 55 Para 7.1).

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The fact that the lender has the ability to unilaterally vary the interest rate of the mortgage will not of itself make the agreement extortionate until the lender actually does vary the agreement to an extortionate level (Paragon Finance Plc v. Pender (2005) EWCA Civ 760). The borrower under a Consumer Credit agreement may also apply for a time order in the Defence Form or by application in proceedings (CPR PD 55 para 7.1).

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If the defendant wishes to raise any other substantive defence to the claim he should file a full defence in addition to or if appropriate, instead of the reply. CPR 15.4 requires that any defence should be filed within 14 days after service of the claim. In practice, this requirement is not strictly enforced in mortgage possession actions. The defendant may appear on the date fixed for the hearing and dispute the claim notwithstanding that no defence has been served but he will usually place himself in a better position if he serves a defence early and may risk an order for costs being made against him if he does not do so (CPR 55.7 (3)).

The Hearing

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Mortgage possession claims are invariably heard by the district judge and will normally be heard in private (CPR PD 2B and CPR PD 39A para 1.5).

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Once the claim is issued the court will fix a date for hearing at which the court may decide the matter or give case management directions. This allows for a quick determination of the claim if it is unopposed or there is no real defence or the defendant merely wishes the court to exercise its discretionary powers to grant relief or in a consumer credit case, to make a time order. If the matter is not straightforward, the court will give case management directions, including dealing with allocation, evidence and the filing of a Defence.

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Although the Claimant may now prove his claim by way of written statements, if the maker of a statement does not attend the hearing and a party wishes to cross-examine on material evidence, the court will adjourn the hearing to allow the maker of the statement to attend (CPR PD 55.8 para 5.4).

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Discretionary Powers

Administration of Justice Act 1970

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If the court is satisfied that the lender is entitled to possession under the terms of the mortgage it must go on to consider the provisions of Section 36 (1) to (4) of the Administration of Justice Act 1970 (AJA 1970) (unless the agreement under which the money was lent is a ‘regulated agreement’ within the meaning of the CCA 1974).

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Section 36:

(1)

Where the mortgagee under a mortgage of land which consists of or includes a dwelling house brings an action in which he claims possession of the mortgaged property… the court may exercise any of the powers conferred on it by subsection (2) below if it appears to the court that in the event of its exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage.

(2)

The court

(a)

may adjourn the proceedings, or

(b)

on giving judgement, or making an order, for delivery of possession of the mortgaged property, or at any time before the execution of such judgement or order, may-

(i)

stay or suspend execution of the judgement or order, or

(ii)

postpone the date for delivery of possession, for such period or periods as the court thinks reasonable.

(3)

Any such adjournment, stay, suspension or postponement as is referred to in subsection (2) above may be made subject to such conditions with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the court thinks fit.

(4)

The court may from time to time vary or revoke any condition imposed by virtue of this section.

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Furthermore, Section 39 of the AJA 1970 provides as follows:

(1)

In this Part of this Act ‘dwelling house’ includes any building or part thereof which is used as a dwelling; ‘mortgage’ includes a charge and ‘mortgagor’ and ‘mortgagee’ includes any person deriving title under the original mortgagor or mortgagee.

(2)

The fact that part of the premises comprised in a dwelling house is used as a shop or office or for business, trade or professional purposes shall not prevent the dwelling house from being a dwelling house for the purposes of this Part of this Act.

Administration of Justice Act 1973

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Sub-sections 8 (1), (2) and (4) of the Administration of Justice Act 1973 (AJA 1973) are relevant in certain cases.

(1)

Where by a mortgage of land which consists of or includes a dwelling house, or by any agreement between the mortgagee under such a mortgage and the mortgagor, the mortgagor is entitled or is to be permitted to pay the principal sum secured by instalments or otherwise to defer payment of it in whole or in part, but provision is also made for earlier payment in the event of any default by the mortgagor or of a demand by the mortgagee or otherwise, then for purposes of Section 36 of the Administration of Justice Act 1970 (under which a court has power to delay giving a mortgagee possession of the mortgaged property so as to allow the mortgagor a reasonable time to pay any sums due under the mortgage) a court may treat as due under the mortgage on account of the principal sum secured and of interest on it only such amounts as the mortgagor would have expected to be required to pay if there had been no such provision for earlier payment.

(2)

A court shall not exercise by virtue of subsection (1) above the powers conferred by Section 36 of the Administration of Justice Act 1970 unless it appears to the court not only that the mortgagor is likely to be able within a reasonable period to pay any amounts regarded (in accordance with subsection (1) above as due on account of the principal sum secured, together with interest on those amounts, but also that he is likely to be able by the end of that period to pay any further amounts that he would have expected to be required to pay by then on account of that sum and of interest on it if there had been no such provision as is referred to in subsection (1) for earlier payment.

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(4)

For purposes of this section the expressions ‘dwelling house ‘, ‘mortgage’, mortgagee’ and ‘mortgagor’ shall be construed in the same way as for the purposes of Part IV of the Administration of Justice Act 1970.

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Section 8 of the AJA 1973 has been held to apply where the interest payable under the mortgage was to be paid regularly but the principal was to be paid as a lump sum at an unspecified date after it had become formally due, in other words, by a loan secured by a mortgage to be paid by the proceeds of a collateral insurance policy which will mature after a number of years (Centrax Trusts Ltd v. Ross (1979) 2 All ER 952 and Bank of Scotland v. Grimes (1985) 2 All ER 254).

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Section 8 of the AJA 1973 does not however apply to a bank overdraft on a borrower’s account secured by a charge on the borrower’s house because there is no express term deferring payment of the principal sum after it has become due. Usually the sum simply does not become due until the bank makes a written demand for it and up until that time there is no due date from which any deferment of payment can be made. If Section 8 were to apply in these circumstances the result would be ‘to deprive banks who use the usual charge for security for an overdraft of any right of enforcement, as long as the debtor continued to pay interest on the capital lent.’ (per Cumming-Bruce LJ in Habib Bank Ltd v. Tailor (1982) 1 WLR 1218).

Exercise of Discretionary Powers

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In Cheltenham and Gloucester B.S. v. Norgan (1996) 1 All ER 449, the Court of Appeal held that, when assessing a ‘reasonable period’ it is appropriate for the court to take into account the whole of the remaining part of the original term of the mortgage. Waite LJ said (at page 458j).: ‘….it does seem to me that the logic and spirit of the legislation require…that the court shall take as its starting point the full term of the mortgage and pose at the outset the question: would it be possible for the mortgagor to maintain payment-off of the arrears by instalments over that period ?’

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Reasonable Period

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Evans LJ in Cheltenham and Gloucester B.S. v. Norgan set out (at page 463a) the considerations which are likely to be relevant when a ‘reasonable period’ has to be established for the purposes of Section 36 of the AJA 1970 as follows:

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"In conclusion, a practical summary of our judgements may be helpful in future cases. Drawing on the above and on the judgement of Waite LJ the following considerations are likely to be relevant when a ‘reasonable period’ has to be established for the purposes of Section 36 of the 1970 Act.

(a)

How much can the borrower reasonably afford to pay, both now and in the future ?

(b)

If the borrower has a temporary difficulty in meeting his obligations, how long is the difficulty likely to last ?

(c)

What was the reason for the arrears which have accumulated ?

(d)

How much remains of the original term ?

(e)

What are relevant contractual terms, and what type of mortgage is it, ie. when is the principal due to be repaid ?

(f)

Is it a case where the court should exercise its power to disregard accelerated payment provisions (Section 8 of the 1973 Act) ?

(g)

Is it reasonable to expect the lender, in the circumstances of the particular case, to recoup the arrears of interest (1) over the whole of the original term, or (2) within a shorter period, or even (3) within a longer period i.e. by extending the repayment period ? Is it reasonable to expect the lender to capitalise the interest, or not ?

(h)

Are there any reasons affecting the security which should influence the length of the period for repayment ?

In the light of the answers to the above, the court can proceed to exercise its overall discretion, taking account also of any further factors which may arise in the particular case."

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In Western Bank v. Schindler (1977) Ch 1 it was held that the borrower may apply for a stay or other relief under Section 36 of the AJA 1970 even where the lender is entitled to possession under the mortgage without showing any default on the part of the borrower. In that case however the court refused to exercise its discretion under Section 36 to stay or suspend the order because, although the borrower had not broken any term of the mortgage he had allowed a collateral insurance policy to lapse and thereby prejudiced the lender’s interest.

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In Royal Bank of Scotland v. Miller (2001) 3 All ER 523 it was held that the relevant time for ascertaining whether the land consists of or includes a dwelling in Section 36 (1) is when the claim for possession is made and not when the mortgage was taken out.

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In Cheltenham & Gloucester B.S. v. Grant (1994) The Independent, May 23, the Court of Appeal held that the borrower should adduce evidence, either orally on oath or by way of a witness statement, as to his means with the intention of showing that he will be able to pay off the arrears within a reasonable period but the court may act without evidence on the basis of informal material. Any relevant documents should be produced at the hearing or attached to the witness statement. The borrower should always complete the court reply form. The court will need confirmation of the answers given on the form together with any up to date information as the necessary evidence for the exercise of its discretionary powers.

Human Rights

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There is no inconsistency between the common law, as mitigated by Section 36 of the AJA 1970 and Section 8 of the AJA 1973 and Article 8 of the European Convention on Human Rights (right to respect for private and family life, home and correspondence) or Article 1 of the First Protocol (entitlement to peaceful enjoyment of possessions) (Barclays Bank Plc v. Alcorn (2002) EWCA Civ 817).

Case Management Powers

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The case management powers of the court do not entitle the court to grant a stay of proceedings for reasons unconnected with case management. In exercise of its case management powers a court may stay a mortgagee’s possession order for some procedural reason connected with the proceedings in which the order is made and where there are related proceedings, case management considerations may dictate that one set of proceedings be stayed pending the determination of the other. However, in proceedings by a bank for possession against a borrower, a Lloyds name, who could not satisfy Section 36 of the AJA 1970 and Section 8 of the AJA 1973, neither the court’s inherent jurisdiction nor its case management powers enabled the court to grant a stay pending the outcome of other litigation concerning Lloyds (State Bank of New South Wales v. Carey Harrison III (2002) EWCA Civ 363 (2002 ) All ER (D) 113 (Mar).

The Order

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The normal order made is for possession to be given within 28 days suspended upon condition that the arrears are paid off at a specified rate per month plus the current payments as they fall due.

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If the court stays or suspends an order for possession the period for which it does so should be defined or ascertainable (Royal Trust Co of Canada v. Markham (1975) 3 All ER 433 and also Western Bank Ltd v. Schindler (1977) Ch 1).

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An order providing that possession is not to be given if the mortgagor pays arrears should specify the precise amount of the arrears, if necessary by a formula (Rees Investments Ltd v. Groves (2001) All ER (D) 292 (Jun) Neuberger J).

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A judgement for possession does not, without more, give rise to an issue estoppel with regard to any concurrent money claim (UCB Bank Ltd v. Chandler (1999) 79 P & Cr 270).

Counterclaim

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The fact that the borrower has brought a counterclaim does not of itself affect the lender’s legal right to possession. It is unlikely that this rule can be circumvented by the provision of Section 36 of the AJA 1970 but even if it can do so the borrower will only be able to forestall the order for possession where he can show that the counterclaim means that he is ‘likely within a reasonable period’ to pay off the arrears, which is unlikely in most cases (Citibank Trust Ltd v. Ayyior (1987) 3 All ER 241 at 246g). The existence of a counterclaim may therefore be relevant to the exercise of the discretion under 1970 and 1973 Acts (National Westminster Bank Plc v. Skelton (1993) 1 All ER 242 and Ashley Guarantee Plc v. Zacaria (1993) 1 All ER 254).

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Bankrupt Mortgagor

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A mortgagor who has been declared bankrupt is entitled to be heard on an application for possession under the 1970 and 1973 Acts (Nationwide B.S. v. Purvis (1998) BPIR 625).

Sale of the Property by the Borrower

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In National and Provincial B.S. v. Lloyd (1996) 1 All ER 630, the Court of Appeal held that, there is no rule of law to the effect that an order for possession of mortgaged property will only be adjourned or suspended if a sale will take place within a short period of time.

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‘…if there were in a hypothetical case, clear evidence that the completion of the sale of a property, perhaps by piecemeal disposal, could take place in six or nine months or even a year, I see no reason why a court could not come to the conclusion in the exercise of its discretion under the two sections that, to use the words of the section, ‘the mortgagor [was] likely to be able within reasonable period to pay any sums due under the mortgage.’ The question of a ‘reasonable period’ would be a question for the court in the individual case’ (per Neill LJ at 638a)

However, if the order is being suspended so that a sale can take place the court must be satisfied that the proceeds will be sufficient to discharge the entire mortgage debt not just the arrears.

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‘….. but it was also made clear that in such a case one is not concerned only with the arrears but that the court must also consider the total sum which is due under the mortgage. Thus it is plain that, if the mortgaged property is going to be sold, then the security for the mortgage disappears too. So, when one is exercising the discretion under the 1970 and 1973 Acts, the figure to be looked at is not only the arrears, but also the total sum due under the mortgage.’ (Neill LJ at 635g).

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In Bristol & West B.S. v. Ellis (1996) 29 HLR 282, the Court of Appeal held that where there was likely to be considerable delay in selling the property and or its value was close to the total of the mortgage debt and arrears so that the mortgagee was at risk as to the adequacy of the security, immediate possession or only a short period of suspension might be reasonable. In that case, the borrowers proposed selling in 5 years and in the meantime making payments which would take 98 years to pay off the arrears.

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In Cheltenham and Gloucester Plc v. Krausz (1977) 1 All ER 21, the Court of Appeal held that the court has no power to suspend an order for possession where the borrower is in a position of negative equity unless he is able to make up the shortfall from other sources. In such circumstances the court should not stay possession pending an application by the borrower under Section 91 (2) for the sale of the property.

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‘It is…. quite clear that Section 26 does not empower the court to suspend possession in order to permit the mortgagor to sell the mortgaged premises where the proceeds of sale will not suffice to discharge the mortgage debt, unless of course other funds will be available to the mortgagor to make up the shortfall.’ (per Phillips LJ at 29c).

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A practical tip for any borrower seeking to suspend an order for possession pending a sale is to produce worthwhile evidence as to the value of the property and the likelihood of its being sold within the ‘reasonable period’ suggested by the borrower. The evidence should ideally be a sufficiently detailed report from a qualified valuer and not just a supporting letter from an estate agent.

Borrower’s Right to Apply for an Order for Sale

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In the most common scenario, it is the lender that wants to obtain an order for possession and the borrower who wants to resist possession while he seeks to sell the property. However, in some cases, the lender wants the borrower to hang on while the market revives and it is the borrower who wants to sell the property. The borrower may make an application under Section 91 (2) of the Law of Property Act 1925.

91(2)

In any action, whether for foreclosure, or for redemption, or for sale, or for the raising and payment in any manner of mortgage money, the court, on the request of the mortgagee, or of any person interested either in the mortgage money or in the right of redemption, and, notwithstanding that-

(a)

any other person dissents; or

(b)

the mortgagee or any person so interested does not appear in the action;

and without allowing any time for redemption or for payment of any mortgage money, may direct a sale of the mortgaged property, on such terms as it thinks fit, including the deposit in court of a reasonable sum fixed by the court to meet the expenses of sale and to secure performance of the terms.

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Palk v. Mortgage Services Funding Plc (1993) Ch 330 illustrates that the court has an unfettered discretion under Section 91 to do what is just and equitable. It may order sale even though the proceeds will not be sufficient to discharge the mortgage debt. In that case the lender wanted to let the property on short-term lettings until the market improved. The court considered that this would prejudice the borrower because a much greater debt would accrue. A sale was ordered.

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Another illustration of the exercise of the court’s discretion under Section 91 (2), is given by Polonski v. Lloyds Bank Mortgages Ltd (1998) 1 FLR 896. The court made an order for sale under Section 91 (2) where the applicant wished to move for social reasons, including better schooling, even though there was negative equity. The bank wanted her to stay because it believed that property prices would increase. It wanted her to remain until the value was sufficient to pay off the mortgage.

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Discretionary Powers in CCA Cases

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In summary, Section 36 of the AJA 1970 does not apply to a mortgage securing an agreement which is a regulated agreement within the meaning of the CCA 1974 (Section 38A of AJA 1970). The court’s powers in consumer credit cases are contained in the 1974 Act and are essentially

(1)

Time Orders: The court may make a ‘time order’ in relation to any sum owed, or any other breach of the agreement providing for payment of the arrears by instalments or for remedying of the breach within a specified period.

(2)

Other Relief: The court may suspend orders for possession and impose conditions in relation to any such order. In addition, the court has power to amend any agreement or security in consequence of a term of any order made.

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In this regard, the key provisions to be noted in the CCA 1974 are:

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Section 129 Time orders

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Section 130 Supplemental provisions about time orders

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Section 135 Power to impose conditions, or suspend operation of order

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Section 136 Power to vary agreements and securities

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The test to be applied under these provisions is different to that which applies under the Administration of Justice Acts, The court does not have to be satisfied that the borrower is ‘likely to be able within a reasonable period’ to pay the sums due under the agreement. The court may make a time order under Section 129 or suspend an order under Section 135 (1) if it appears to the court ‘just to do so.’

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Consideration of what is ‘just’ includes consideration of the creditor’s position as well as that of the debtor. Where as a result of the default the principal sum has become due the court will take into account that the section is directed at rescheduling the whole of the indebtedness under the regulated agreement, as well as the arrears and the current interest and if there is no prospect of the debtor being able to pay any part of the principal the court is unlikely to exercise the discretion in his favour (First National Bank Plc v. Syed (1991) 2 All ER 250).

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Significantly, where the lender brings possession proceedings the court has the power under Sections 129 and 136 to alter the contractual terms of the agreement so as to reduce the monthly payments and the interest payable, in relation to both past and future sums due (see the judgement of Leggatt LJ in Southern & District Finance v. Barnes (1996) 1 FCR 679 at 686).

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Under Section 129 (1) (b) of the CCA 1974 the borrower may make an application for a time order without waiting for the lender to commence proceedings.

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Under Section 130 (6) of the CCA 1974 the court may vary or revoke a time order on the application of ‘any person affected’ by such an order.

Costs

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In a mortgage possession action, a lender who is successful is almost always entitled to add the costs of the claim to his security under the terms of the mortgage. The district judge may say nothing specifically about costs or may say ‘costs to be added to the security’. However, no order in those terms is normally required.

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However, in circumstances where the lender is under-secured it is sensible to seek an order for costs so that the lender can try to recover the shortfall on costs by some other method. Where an order for costs is made they are subject to assessment in the normal way but in exercising its discretion the court has to give effect to the contractual right to add costs to the security. This will mean that the lender will be entitled to costs on an indemnity basis, so that it will be for the borrower to show that any particular item was unreasonably incurred or unreasonable in amount (CPR 48.3 and PD 48. Also Gomba Holdings (UK) Ltd v. Minories Finance Ltd (No.2) (1992) 4 All ER 588).

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The fact that an order for costs is not usually made does not deprive a borrower of the opportunity to challenge the costs that the lender seeks to add to the security. He may do so but once again the guiding principle is that the court will give effect to the contractual terms in the mortgage and it will be for the borrower to show that the individual items were unreasonably incurred or excessive (CPR 48.3). the costs can be challenged on the taking of an account or on a summary or detailed assessment (PD 48, Section 50.4).

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In practice, borrowers face a difficult and potentially uneconomic task, as the time and cost of challenging the existing costs will, if the borrower is unsuccessful, add to the burden.

Miscellaneous

Interest

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Although as a general rule a claimant in the county court may recover interest on a judgement debt for a sum of not less than £ 5000. such interest is not payable where the relevant judgement: (a) is given in proceedings to recover money due under an agreement regulated by the CCA 1974; or (b) grants the mortgagee under a mortgage of land which consists of or includes a dwelling-house a suspended order for possession (see Section 74 of the County Courts Act 1984 and Rule 2 of the County Courts (Interest on Judgement Debts) Order 1991). The lender, however, retains a contractual right to interest.

Execution

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A mortgage possession order may be enforced in the same way as possession orders against tenants. In the High Court, if the possession order has been suspended on conditions leave to issue execution is required (RSC order 46 rule 2 (1) (d)). The application must be supported by an affidavit (see Order 46 rule 4 (2)). In these circumstances, the borrower must be given the opportunity of being heard (Fleet Mortgage and Investment Co. Ltd v. Lower Maisonette (1972) 2 All ER 737).