Mortgage Lenders can take possession without court order

Mortgage Lenders can take possession without court order

In the case of Ropaigelach v Barclays Bank plc the Court of Appeal held in their judgment dated 18 December 1998 that a mortgage lender was entitled to exercise its common law right to take possession of a mortgaged dwelling house without first obtaining a court order, and that the protection afforded by Section 36 of the Administration of Justice Act 1970 only applied where the lender had taken court proceedings to obtain possession.

Facts

The mortgagee of a residential property mortgaged by joint mortgagors, sent a valid demand for payment under the mortgage to one of the mortgagors at the address of the mortgaged property. The mortgagors took no action to repay the loan, and the mortgagee wrote again one year later to warn the mortgagors that they would take steps to realise their security. The mortgagee wrote again one month later to warn the mortgagors that their house would be sold at an auction to take place three weeks later.

The mortgagors contended that they were not in possession of the house at the relevant time due to repair or refurbishment work being undertaken to the house, and that they did not receive the last letter. They found out about the auction sale from a neighbour and applied ex parte for an injunction to restrain the mortgagee from selling the house. The injunction was refused on the grounds that the sale of the house had already been completed.

One of the joint mortgagors appealed against the decision. The main question for consideration was whether the mortgagee had been entitled to act without a court order in taking possession of his house and selling it. The Appellant submitted that Section 36 Administration of Justice Act 1970 had clearly been enacted to protect a borrower from being ejected when a lender applied to the court for an order for possession. The Appellant also contended that the application of Section 36 should be extended to circumstances where a court order had not been applied for and the lender had resorted to self help instead, relying on Remon v City of London Real Property Co [1921] and Cruise v Terrell [1922].

Decision

Lord Justice Chadwick in dismissing the appeal, held that a lender did not have to obtain an order from the court before being entitled to take possession of the mortgaged property and that Section 36 did not apply.

It was common ground between the parties that Section 36 had been originally enacted to rectify the position which had arisen following Birmingham Citizens Permanent Building Society v Caunt [1962]. In Caunt, it had been held that the court had no power to refuse or suspend an order for possession which the lender was otherwise entitled to. Parliament, in introducing Section 36, had not, however, addressed the issue of whether a mortgagor required protection against a mortgagee who took possession without the assistance of the court.

Since it was impossible to decide what the intention of Parliament had been when they enacted this section, the Court of Appeal were reluctant to impose an intention that a mortgagee should only be allowed to exercise his common law right to possession with the assistance of the court. Before words could be implied into an Act, the statutory intention must have been plain and the insertion not too big, or too much at variance with the language in fact used by the legislation.

Comment

We are now left with the anomalous position that mortgagors may have protection afforded by Section 36 Administration of Justice Act 1970 in cases where the lender chooses to seek the assistance of the court by taking proceedings to enforce his right to possession, but that he should have no similar protection where the lender chooses (and is able) to resort to his self help remedies by entering the property without first obtaining an order from the court. The latter remedy can only be undertaken by a mortgagee if it is a peacable re-entry. Therefore, a mortgagee cannot recover possession by breaking into the property as this would constitute a criminal offence. Similarly, if a mortgagor was in occupation of the property, a mortgagee would find it more difficult to recover possession without a court order, since it would be less likely to be peaceful.

This article was first published in a Marcfarlanes' Banking and Insolvency Practice Note on 16 February 1999.

This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.

If you would like further information or specific advice, please contact Tony Evans at Macfarlanes London Office.