Mortgage Possession

Since the 1980's, the trend in England and Wales towards home ownership has steadily been on the increase, with over 68% of homes in England and Wales now being owner-occupied.

Following the “credit crunch”, the Council of Mortgage Lenders predicted huge rises in borrower arrears and repossessions. In 2009, the number of properties repossessed by lenders peaked at approximately 46,000 homes. Whilst the numbers of properties repossessed by lenders has not increased since this date, due to historically low interest rates, increased lender tolerance and the introduction of Government rescue schemes, many are calling for increased legal protection for borrowers who fall into arrears. This is of particular relevance now, following the Council of Mortgage lenders prediction that a further increase in mortgagee repossessions will be seen, when interest rates start to increase.

Obtaining possession of a property - The Law

This area of law is largely governed by case law, the Law of Property Act 1925, the Administration of Justice Act 1970 (as amended) and the contractual provisions contained within a mortgage deed.

Most modern mortgages contain an express term which grants lenders an express power of sale, should a borrower default on their mortgage payments. Lenders also enjoy an implied right to sell a property under Section 101 of the Law of Property Act 1925. However this right is almost always substantially varied or excluded by the express terms of the mortgage.

Where the express mortgage conditions do not exclude Section 101 of the Law of Property Act 1925 then the power of sale can only be exercised when the mortgage is made by Deed, and the power has arisen (i.e. the borrower is in arrears) and one of the following has occurred:-

1 - Notice requiring payment has been served, and three months has passed and the money still owing; or

2 - Interest is two months in arrears; or,

3 - The borrower is in breach of another provision in the mortgage deed or 1925 Act.

A power of sale operates as a self-help remedy for lenders, who can exercise this right without commencing possession proceedings. It allows a lender to sell a property to a third party, receive the purchase monies and pay off the mortgage debt with the monies received. The new owner is then at liberty to bring possession proceedings against the former borrower, who is effectively becomes a trespasser in the property.

This route is not widely used by mortgage lenders, however its...