What are the court's powers when a borrower needs more time to sell the house to pay off the whole of the mortgage debt? Does the borrower need to have contracts in place before the court will adjourn or stay to allow the sale to be completed? In this article Gary Webber suggests not.
Every working day up and down the country district judges hear mortgage possession claims. Sometimes the borrower needs more time to sort out his or her finances so that he can pay off the arrears over time. In our case, the borrower accepts that the game is up and that the house has to be sold. All that is being asked for is more time to sell. There has been some interest in the property. In fact, there is a particular purchaser who is reasonably close to exchange and there is a letter from the agent or from the borrower's solicitors (sometimes even from the purchaser's solicitors) confirming the position. However, as yet there is no actual contract for the sale of the property.
The lender's advocate is taking a hard line. He "cites" the Steele case (ie. he mumbles the name of the case) as authority for the proposition that the court only has power to adjourn where contracts have been exchanged (Mortgage Services Funding plc v Steele, CA, unreported, 10 April 1996). This article will argue that this view is incorrect.
The starting point
The starting point is of course s36(1) of the Administration Act 1970: Is the borrower likely to be able to repay the sums due within a reasonable period? Where the property is to be sold the sums due are not simply the arrears but the whole sum due under the mortgage. Neill LJ in National and Provincial Building Society v Lloyd  1 All ER 630:
".. if the mortgaged property is going to be sold, then the security for the mortgage disappears too. So, when one is exercising the discretion under the 1970 and 1973 Acts, the figure to be looked at is not only the arrears, but also the total sum due under the mortgage." (635h)
How long is a reasonable period?
In a standard mortgage possession case where the property is not going to be sold the starting point is the full term of the mortgage (C& G Building Society v Norgan  1 All ER 449, CA). Where the property is going to be sold such an argument is not really apposite. However, that does not mean that the property must be sold immediately. What is reasonable is still a question of fact and degree for the court to decide. In National and Provincial Building Society v Lloyd Neill LJ went on to say this:
"It is true that it has been said that in the case of the sale of mortgaged property the adjournment or suspension which will be allowed will only be allowed if a sale will take place within a short period of time. Speaking for myself, however, I do not understand that there is any rule of law to this effect. Accordingly, if there were, in a hypothetical case, clear evidence that the completion of the sale of a property, perhaps by piecemeal disposal, could take place in six or nine months or even a year, I see no reason why a court could not come to the conclusion in the exercise of its discretion under the two sections that, to use the words of the section "the mortgagor [was] likely to be able within a reasonable period to pay any sums due under the mortgage". The question of a 'reasonable period' would be a question for the court in the individual case". (637j-638a)It is to be noted that the decision in National and Provincial Building Society v Lloyd was decided after full argument during which all the previous important authorities were cited. Further, in Bristol & West Building Society v Ellis (1997) 29 HLR 282 it was stated that the period of one year referred to in Lloyd was not a maximum period either
"...as a rule of law or as a matter of general guidance. It all depends on the individual circumstances of each case, though the important factors in most are likely to be the extent to which the mortgage debt and arrears are secured by the value of the property and the effect of time on that security. There is thus no limit on the court's discretion. Each case must be decided on its own facts. (The particular facts in Lloyd were in fact somewhat unusual. Hence the reference to piecemeal disposal).
Where the property is already on the market and there is some indication of delay on the part of the mortgagor, it may be that a short period of suspension of only a few months would be reasonable... Where there is likely to be considerable delay in selling the property and/or its value is close to the total of the mortgage debt and arrears so that the mortgagee is at risk as to the adequacy of the security, immediate possession or only a short period of suspension may be reasonable. Where there has already been considerable delay in realising a sale of the property and/or the likely sale proceeds are unlikely to cover the mortgage debt and arrears or there is simply no sufficient evidence as to sale value, the normal order would be for immediate possession..".
The Steele case
Judgment had been given for possession against a borrower. This was an application by the (unrepresented) borrower to the Court of Appeal for permission to appeal. At the date of the application the amount required to redeem the mortgage was £262,313. The arrears were £29,126, an increase of over £3,000 since the case had been before the judge. The current monthly instalments were £2,205. The borrower accepted that he could not meet the monthly instalments and wanted time to sell the property. His affidavit evidence on the application to appeal stated: "I have a buyer for the property, the sale price agreed is £311,000. I need time to complete the sale." As will be seen from the citations below the rest of his evidence was hopeless. The application for permission to appeal was dismissed.
The judges hearing the application were Nourse LJ and Ward LJ. No previous cases were referred to in the judgment other than Cheltenham & Gloucester Building Society v Norgan. (Neither of the judges were judges in the National and Provincial Building Society v Lloyd or Bristol & West Building Society v Ellis.) The following comments appeared in the judgment of Nourse LJ:
"We have sought further details from the defendant about the matter. He says that he has instructed a licensed conveyancer, Mr Mendis, to act on his behalf in relation to the proposed sale, but we have no further details about it, nor do we have anything which would enable us to say that the matter had reached a sufficient stage of certainty to allow the proceedings to stand over pending complete of the sale ... [T]he defendant has fairly told us that he recognises that the property has got to be sold. That really seems to be clear; it is a huge mortgage debt. At the moment, if the property could be sold for the figure of £311,000, there would be sufficient to redeem the mortgage and leave something to spare for the defendant on top. The general approach of the court in cases of this kind, where the mortgagor recognises that the property has got to be sold, is not, on that account, to delay the mortgagee from enforcing his remedies. If the property has to be sold, it can just as well be sold by the mortgagee, whose duty is always to obtain the best price reasonably obtainable at the date of the sale. If there is a potential purchaser at hand, then all the mortgagor has to do is to put the mortgagee in touch with him and the matter can proceed from there. Unless there is firm evidence that a particular sale is about to be completed, it is not the practice of the court to prevent the mortgagee from enforcing his remedy of obtaining possession and exercising his own power of sale over the property. In all the circumstances it does not seem to me that this court has sufficient material before it to justify it in taking a different view from that taken by [the judge at first instance]."Ward LJ also agreed that the application should be dismissed. His judgment included this comment:
"As for the prospect of sale, which is really what Mr Steele is hoping for, I agree with my Lord that the evidence of that is utterly flimsy. There is nothing before us which would enable me to be persuaded that he has any real hope, within a reasonable time, of clinching that sale".The quotation of Nourse LJ above contains strong words and one can see why lenders seek to rely upon them. However, are they right to do so? I suggest not.
The problems with Steele
There a number of factors that need to be considered in relation to the case. The first point to note is that it was an application for permission to appeal made by an unrepresented borrower. It was not a full hearing containing full argument and full case citation. The case is not reported and I only have the transcript of the judgment. It is therefore not clear what cases, if any (except perhaps Norgan), were cited by counsel who appeared on behalf of the lender. However, it is clear that the court did not refer to and had no regard to National and Provincial Building Society v Lloyd and Bristol & West Building Society v Ellis. The general statements made by Nourse LJ (quoted above) are clearly inconsistent with those two earlier Court of Appeal authorities.
Secondly, the evidence relied upon by the borrower was described as "utterly flimsy" (Ward LJ) so it is impossible to say that there was a factual situation in the case that could give rise to any legal principle - bearing in mind once again this was only an application for permission to appeal.
Thirdly, although it is true to say that the lender is under a duty to obtain the best price reasonably obtainable, it is still well known in the real world that a forced sale can lead to a lower price without the lender being in breach of duty. Further, and more importantly for these purposes, leaving the borrower in possession will frequently lead to an earlier sale. This has in fact been recognised in the Court of Appeal in Target Home Loans Ltd v Clothier  1 All ER 439 (another case not referred to in Steele) where the court made an order for possession to take place in three months time so as to allow the sale to take place by the borrower because the prospects of an early sale were best served by leaving the property with the borrower. Nolan LJ at 447a:
"On the evidence there is no way in which [the defendant] is going to meet [his mortgage commitments] except by the sale of this house. That leads directly to the question: is there a prospect of an early sale? If so, is it better in the interests of all concerned for that to be effected by him and his wife or by the mortgage company? If the view is that the prospects of an early sale for the mortgagees as well as for [the defendant] are best served by deferring an order for possession, then it seems to me that that is a solid reason for making such an order but the deferment should be short."
One more case
I am only aware of one case in the Court of Appeal where Steele has been referred to. This is Halifax v Ankerman  EWCA Civ 697. Once again this was an application by an unrepresented borrower for permission to appeal, this time from a judge refusing an application to stay a warrant. Once again National and Provincial Building Society v Lloyd and Bristol & West Building Society v Ellis were not referred to. The only citation was from Steele. Chadwick LJ quoted part of the judgment of Nourse LJ referred to above and went on to say: "That is a passage which might well be kept in mind by mortgagors who labour under the belief that all they have to do is come to court to say that the property is now on the market; and then expect the court to stay whatever order for possession is in force."
The judge had taken the view on the evidence that there was no sufficient evidence to enable him to exercise his discretion under s36. The Court of Appeal agreed. However, it all became academic because on the day before the hearing the lender had become aware of the borrower's attempts to market the property and agreed to an order allowing time for the property to be sold. Chadwick LJ:
"The Halifax has taken the view, sensibly, if I may so, that it might well be to its own benefit, as well as to the benefit of Mr Ankerman, if the property were marketed by the agents currently instructed, with Mr Ankerman and his family in occupation."The order was suspended for 56 days for the property to be sold but subject to a condition that the borrower should keep the lender informed as to the progress of the sale and permission to the lender to apply to lift the suspension if it became concerned that the borrower was not making genuine attempts to sell.
It should also be borne in mind that the pre-action protocol for mortgage possession claims states as follows (para 6.2):
"If a borrower can demonstrate that reasonable steps have been or will be taken to market the property at an appropriate price in accordance with reasonable professional advice, the lender must consider postponing starting a possession claim. The borrower must continue to take all reasonable steps actively to market the property where the lender has agreed to postpone starting a possession claim."Conclusion
At the end of the day we are back to where we started. The only test is the one set out in the governing statutory provision, s36 of the 1970 Act: Is the borrower likely to be able to repay the sum due under the mortgage - in this case as a result of a sale - within a reasonable period? If there is any judicial gloss on that it is simply that there must be "clear evidence" to that effect. National and Provincial Building Society v Lloyd and Bristol & West Building Society v Ellis make it clear that this is simply a matter of the court's discretion on the individual facts of the case. The protocol also now encourages lenders to allow the borrower to arrange the sale. Obviously borrowers can't just "come to court to say that the property is now on the market; and then expect the court to stay whatever order for possession is in force". On the other hand there is no arbitrary time limit whether as a matter of law or practice. There is no requirement that exchange of contracts must have taken place.
Those who rely upon Steele without also referring to the earlier Court of Appeal authorities have not read it, fail to appreciate how precedent works (not every utterance of a judge in the Court of Appeal represents the law) or are deliberately misleading the court.
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