Challenging Receivers Insolvency Sales Of Property

The financial downturn has created an unprecedented rise in the number of fixed charge receivers appointed by banks over mortgaged property. Sometimes these receiverships are referred to as LPA Receivers (as they are nominally regulated under the Law of Property Act 1925 - although most standard charge documents vary and/or exclude the provisions of the Act, giving the bank and their receivers wider powers).

In May 2013 the High Court dealt with a challenge to a LPA receivership in the case of (1) Jumani (2)Tariq v (1) Mortgage Express (2) Walker Singleton [2013] EWHC 1571 (Ch)).

It is always difficult to challenge a receivership - as receivers have a relatively limited set of restrictions and wide powers which are usually granted under the express provisions of the mortgage/charge. The case concerned borrowers who had a buy-to-let properties. A large number of properties were mortgaged. It was a term of the mortgage that stated:

"If you have more than one mortgage with us, and you want to pay off just one of those mortgages, we have the right ... to stop you paying off the mortgages separately and to insist that you pay them all off".

Following default on the mortgages receivers were appointed by the bank ("Mortgage Express"). The borrowers alleged that the bank had agreed to terminate the receivership on the basis that they agreed to manage the properties and return the mortgage accounts to credit. This was said to be an oral agreement made with the receiver. They claimed that the receivers were failing to manage the properties. It was the borrowers' case that if they had not been promised the return of the properties they would have walked away.

However the Bank refused to terminate the receivership and denied that the agreement was made.

The court held that under the terms of the mortgage the bank was entitled to appoint the receivers and further there was no obligation on the bank to terminate the receivership even if the arrears were cleared. The bank had the right to allow the receivers to attempt to realise their security. Any variation of the mortgage conditions (including the power to appoint and maintain a receivership over the properties) would only be established if an agreement to vary could be proved on the facts. The mortgage conditions provided that the receivers were agents for the borrowers not the bank which meant that the bank was not liable for the receivers' actions despite their principal duty being to the bank.

However there have been cases where receiverships have been successfully challenged and all...