Land -> Mortgagee's and Remedies

Remedies available to a legal mortgagee (i.e. the bank):

1. Power of Sale.
2. Foreclosure.
3. Possession.
4. Appointing a receiver.
5. Personal Remedy of suing on Covenant to repay.

The first three are primarily concerned with recovering capital whereas the last two seek to recover interest.

Power of Sale

When does it Arise

The power for the mortgagee to sell the land is implied into every mortgage made by deed by Law of Property Act 1925 (LPA), s 101(1) and arises when the mortgage has become due on the contractual date of redemption.

When is the Power of Sale Exercisable?

However it’s not exercisable until one of the conditions are satisfied by LPA 1925,s 103:

1. You have given the mortgagor a notice requiring payment and the default has continued for 3 months after.
2. Some of the interest payable is at least two months in arrear.
3. There has been a breach of a covenant in the mortgage (other than non-payment) or some other provision of the LPA 1925.

Sale has the advantage over foreclosure that it’s not necessary to apply for a court order. However the mortgagee may be liable to the mortgagor for any loss caused through his negligence in conducting the sale.

Significance of its exercise on any other Mortgagees

Unless the mortgaged property is standing empty, the mortgagee will need to seek ‘an order for possession’ before sale. He is not obliged by law to do so, but he cannot evict the mortgagor by force, and the property will probably not be saleable unless the mortgagee can give vacant possession. The effect of sale is to vest the estate in land in the purchaser, free of the mortgage and any other mortgages of lower priority (LPA s. 104).

The two duties owed by the selling mortgagee

According to Salmon LJ in Cuckmere Brick v Mutual Finance a selling mortgagee owes certain duties, which were also re-emphasised in Silven v Royal Bank of Scotland:

1. Act in good faith: in order to obtain the best price possible. Otherwise the mortgagee will find himself liable to the mortgagor if he fails to do so. Which is why mortgagee's usually appoint a receiver to handle the sale as an agent, thereby limiting their liability (unless they're negligent in appointing the receiver).
2. Take reasonable care.

Mortgagee’s Responsibilities regarding proceeds of Sale

LPA s. 105 states all proceeds of sale must be paid in order of priority of the mortgages and any outstanding amounts can be claimed personally.

Foreclosure

When a borrower can not repay a load and the lender seeks to sell the property. The legal process by which the mortgagor’s equitable/statutory rights to redeem the property is terminated.

• Foreclosure can not be sought before contractual obligations to repay have been broken. (Williams v Morgan).
• A court order is required for foreclosure, its effect is to vest the mortgagors estate in the mortgagee in full settlement of debt (LPA 1925, 88(2) & 89(2)).
• If the property is worth more than the debt, the mortgagee is not liable to pay the difference to the mortgagor, which can be seen as being unfair to the mortgagor.
• On hearing the application for foreclosure the court will give the mortgagor a period to redeem the mortgage. However since the mortgagor is usually in financial difficulties and therefore unable to repay the load.
• Mortgagor has right to ask for an order for sale instead of foreclosure (LPA s.91(2)). ADVANTAGE: After sale the mortgagee can only keep the amount due while any remainder goes to the mortgagor or others entitled.
• DISADVANTAGE to Mortagor: Once an order for foreclosure has been given the case can be reopened and allow the mortgagor to redeem property (Campbell v Holyland) provided they meet the criteria: Speed of mortgagor’s application, reason for failure to redeem and nature of property. UNLESS the property has already been sold by the mortgagee.

Possession

Although the mortgagee has the right to possession, the mortgagee will not normally exercise that right where the borrower has not defaulted (exp Bignold). Although theoretically a mortgagee does not require a court order (Wade [1995]), very few will proceed without one as seen in Barclays Bank v Bird.