Following the very widely reported decision in the case of Horsham Properties v. Clark and Another and the initial review instigated by the Ministry of Justice following that decision, the Council of Mortgage Lenders has now published their response to the questions raised by the review.
Both the decision in the Horsham case and the Council of Mortgage Lenders have simply re-affirmed what has always been the position regarding mortgagee’s rights of possession and sale as set out in the Law of Property Act 1925 (“LPA”). Section 101 of the LPA provides that a lender has a power of sale to sell a secured property in the event of a default by a borrower. It applies to secured charges and can only be exercised in the circumstances set out in the relevant sections of the LPA.
As was shown in the Horsham case, a lender does not have to sell a property with vacant possession. For example, if there is a buy to let mortgage and the property is tenanted at the time of default, then the lender may decide that they will exercise their power of sale and sell the property with the tenant still in place. For a standard residential loan, the Lender may still sell the property without a Court Order if the borrower has left the property and the Lender can sell with vacant possession. However, if the borrower is still in residence then the Lender will need to obtain a Court Order in order to obtain vacant possession before sale. This is of course very standard procedure for Lenders.
Obviously Section 101 of the LPA is only one of the Lender’s remedies when dealing with a defaulting borrower and all other remedies need to be considered whenever a borrower defaults.
As the Council of Mortgage Lenders has said in its response to the Ministry of Justice initial review, any change to existing statute law relating to mortgages would be fundamental to the lending industry. However at this time, no such change has taken place and lenders are still able to rely upon the same sections of the LPA that they have been able to since 1925.
For further information please contact Ann Ebberson or the Partner with whom you usually deal