The voluntary code has been tightened so that the public are protected from rogue bailiffs who use unsound, unsafe or unfair methods, while at the same time making sure businesses and authorities can still collect debts fairly.

The national standards provide guidance on a range of issues, including:

1. Creditors’ responsibilities when instructing and dealing with enforcement agents or agencies (e.g. creditors must provide a contact point at appropriate times, to allow the enforcement agent or agency to raise essential queries, particularly where there is cause for concern);

2. Professional conduct requirements for enforcement agents (e.g. the need to present appropriate identification to the debtor and to carry out their duties in a professional, calm and dignified manner);

3. Compliance with statutory or financial requirements (e.g. enforcement agencies must keep a complete record of all financial transactions in whatever capacity undertaken, and must maintain suitable and comprehensive insurance cover);

4. Training and certification. All agents, employees and contractors must be provided with appropriate training to ensure that they are able to always act within the bounds of the relevant legislation;

5. The need to operate complaints and disciplinary procedures with which agents are fully conversant. Enforcement agents/agencies are encouraged to make use of the complaints and disciplinary procedures of professional associations such as The Civil Enforcement Association or the High Court Enforcement Officers Association.

6. Acceptable times and hours for enforcement activity. Enforcement should only be carried out between the hours of 6.00am and 9.00pm or at any time during trading hours. It should not be undertaken on Sundays, on Good Friday or on Christmas Day, unless the court specifically orders otherwise. Enforcement agents should carefully consider the appropriateness of undertaking enforcement on any day of religious or cultural observance or during any major religious or cultural festival.

7. What goods can be taken. Enforcement agents must ensure that goods are handled carefully and that they have insurance in place for goods in transit so that any damage is covered by the policy. Items clearly identifiable as an item belonging to, or for the exclusive use of a child under the age of 16 should not be removed. A receipt for the goods removed should be given to the debtor or left at the premises.

8. Vulnerable situations. Enforcement agents/agencies and creditors must recognise that they each have a role in ensuring that the vulnerable and socially excluded are protected (e.g. the elderly, recently bereaved, single mothers and pregnant women).) Enforcement agents must withdraw without making enquiries if the only persons present are children who appear to be under the age of 12.

A copy of the revised national standards are here.

The Government has also announced that a consultation on proposals to create a new legally binding regulatory regime for bailiffs will follow in spring 2012. These will include:

1. New rules governing the permitted modes and times of entry by enforcement agents to make it clear when and how an enforcement agent may enter a home or a business;

2. Which goods are exempt to make it clear which items an enforcement agent may not take from someone’s home or business premises; and

3. What fees bailiffs can charge for the range of debts that they collect for local government, courts and businesses.

The Government aims to introduce these changes as soon as possible.

The main issue was whether the Vendors could claim that they had a right of occupation which was an overriding interest within paragraph 2 of Schedule 3 to the Land Registration Act 2002 (“the Act”) binding on the lenders by virtue of s29(2)(a)(ii)? The following issues were considered:

• First of all the Court of Appeal considered the transaction generally.  The correct approach was that there were two transactions, one for the sale of the freehold and one for the leaseback to the Vendors upon completion.  No reference was made in any of the contracts for sale to the grant of a leaseback to the Vendors.  The clear impression created by the contracts was that the Vendors would be selling without reserving any beneficial interest or other rights in the property.  There was nothing to alert the lenders to the possibility that the Vendors expected to remain in possession after completion or that the Purchasers would obtain anything less than the entire legal and beneficial interest in the properties.
• Reference was made to the House of Lords case of Abbey National Building Society v Cann.  Mrs Cann had contributed to the purchase price of a property from money she received on the sale of her previous property.  She was given an assurance by her son that she would always have a roof over her head.  She claimed that she had an equitable interest in the property by virtue of her actual occupation. The House of Lords held that to acquire an overriding interest against a lender by virtue of occupation, the person claiming the interest had to have been in actual occupation at the time of the creation of the legal charge. Where a purchaser relied on a bank or building society loan to complete his purchase, the transaction – that is the transfer of the property and the completion of the mortgage – were one indivisible transaction, and that there was no moment in time (scintilla temporis) during which the property vested free of the mortgage. The House of Lords had held that a purchaser who can only complete the transaction by borrowing money cannot in reality ever be said to have acquired even for a moment of time an interest in land whereby he could grant interests having priority over the mortgage.  Accordingly Mrs Cann took subject to the lender’s charge.
• The Vendors sought to distinguish Cann.  They asserted that Mrs Cann’s beneficial interest arose from the proceeds of sale of her previous house whereas the Vendors in the present case were already in occupation of the properties.  This transaction reflected a change in social and economic conditions created by the fact that people live longer and many have a need to release equity from their property to meet the debts and living expenses to enable them to continue to live in their homes.  The driver of this economic activity was the need or desire of people usually of modest means advancing age and limited legal knowledge and experience to stay in possession of their homes. Lenders could easily protect themselves by making direct enquiry of occupying vendors as to what right they thought they would have on or after completion in relation to the property.
• The Court of Appeal decided that it was not possible to distinguish Cann.  Mrs Cann gave up occupation of her former home in which she had a beneficial interest.  The driver of these transactions was the Vendors’ need or desire to sell the properties.  Without such a sale the charges on the Vendor’s properties would not be discharged.  There was no reason to suppose that the purchase price would not be funded in the usual way by secured loans.  Finally, it would not be appropriate to place on the lenders the risk of carelessness or fraud in the carrying out of the promises or representation made to the Vendors because the lenders could have and should have made direct enquiries to the Vendors.  If persons intend to retain any interest in their property after completion they should make that clear in the contractual and associated documents, the inspection of which will form the basis of the report on title.  There is, therefore, no point in a lender making direct enquires of a vendor as opposed to the other occupier.  It would be difficult to envisage that it would be appropriate or proper for the lender to by-pass the vendor’s solicitors and communicate directly with the vendor.
• The Vendors also argued that between the sale of registered land and the registration of the transfer, the purchaser was by, virtue of the Act, entitled to exercise the owner’s powers in relation to a registered estate including the power to make a lease. A lease of 7 years does not have to be registered.  It followed that the Vendor’s rights under a lease for 7 years or less had priority over the lender’s right under a subsequently registered charge even though the charge was executed before the grant of the lease.
• The Court of Appeal held that any leases of 7 years would have expired and therefore it was hard to see its relevance. In any event, prior to registration of the transfer, the grant of any lease takes effect in equity only and does not fall within the Act at all.  The Court of Appeal did not accept that a lease of 7 years or less granted by the purchaser pending his registration acquired priority even where the lease is granted and the charge is executed within the priority period conferred by the mortgagee’s official search. Prior to registration the purchaser’s interest in the property can only subsist in equity.  As a matter of basic land law, an equitable owner of land cannot grant a legal interest. 

Accordingly the appeals were dismissed and the lenders were entitled to the possession orders the right to obtain vacant possession of the properties.  The Vendors had not acquired any interest which the lenders were subject to and the lender’s charge took priority.  The problem had arisen because the contracts for sale had not given details of the contractual deal.  If this had been clearly stated and recorded then it would have alerted the lenders.  As the Court of Appeal noted, this omission seems, on the face of it, plainly inconsistent with proper conveyancing practice. The Vendors may now consider whether to make an appeal to the Supreme Court.

Denise Cook v Mortgage Business PLC and other related cases [2012] EWCA Civ 17

In this case, the borrower which was a limited company borrowed money from the Bank of Ireland (“the Bank”) on the security of mortgages over properties and of guarantees given by two directors.  The borrower then defaulted and the Bank took steps to recover possession of the properties.  The Bank’s legal costs came to £123,984, which the Bank paid.  Subsequently the mortgages were transferred to another party and soon afterwards the borrower repaid the sums owed including the legal costs and in that way the borrower had paid the sums demanded including the legal costs. 

The borrower applied for the assessment of the costs under s71 of the Solicitors Act 1974.  S 71 (1) entitles the borrower, although a third party, to obtain an assessment of a bill as if he were the client.  The Court of Appeal held that under s71 the court is only entitled to interfere with the hourly rate agreed between the solicitor and the client to the extent that it could have interfered with it at the behest of the client.  He can eliminate items that are not within the scope of the mortgage and items which are only allowable as between the client and the solicitor on a special arrangement basis under the terms of the Civil Procedure Rules, but generally this is quite limited.

The Court of Appeal, therefore, considered that in a mortgage case an account should be taken of what was due under the mortgage rather than bringing proceedings under s71.  Such proceedings would enable the court to determine the correct issue as between the correct parties and if, appropriate, to order repayment by the Bank to the borrower.  In those proceedings it would be possible to disallow part of an amount claimed on the basis that something was due, but not as much as is claimed – for example by substituting a lower hourly rate.

Instead of seeking an assessment under s71, therefore, in almost all cases a borrower or other party seeking to challenge the costs claimed should bring a claim for an account of the sums due under the mortgage.

In the light of this judgment, it may be anticipated that third party assessments will become rare where the real issue is as to the reasonableness of legal costs.  It seemed to the court that the appropriate procedure for a dispute of this kind is a subject worthy of the attention of the Civil Procedure Rules Committee.

Tim Martin Interiors Ltd v Akin Gump LLP [2011] EWCA Civ 1574

Mr McGuiness appealed that decision.  The Court of Appeal considered the different types of guarantees and the type of liability that arose as a result.  The differing types of guarantees are as follows:

• A “see to it” obligation i.e. an undertaking by the guarantor that the principal debtor will perform his own contract with the creditor.  This gives rise to a liability in damages.  The obligation undertaken by the guarantor is not one to pay, but consists of a promise that the debt will be paid by the principal debtor.
• A conditional payment obligation i.e. a promise by the guarantor to pay the instalments of principal and interest which fall due if the principal and interest which fall due if the principal.  This creates a liability in debt.
• An indemnity.  This gives rise to a claim that is enforceable by way of action for unliquidated damages.
• A concurrent liability with the debtor for what is due under the contract of the loan.  This creates a liability in debt.

The Court of Appeal held that where the guarantee, on its proper construction, contained a promise by the guarantor to pay the principal sum due and interest in the event of the debtor failing to pay, no difficulty arises.  The claim is one in debt.  However, guarantees with a “see to” it liability are not the same as an obligation to pay a sum of money under the contract whether as a debt or agreed damages although the measure of the guarantor’s liability is the amount of the debt.

The court looked at clause 2.2 of the guarantee which stated that:

“You guarantee that all money and liabilities owing, or becoming owing to us in the future, by the Borrower (whether actual or contingent, whether incurred alone or jointly with another and whether as principal or surety) will be paid and satisfied when due.”

Mr McGuiness argued that this clause created a promise to “see to it” that the borrower would perform his own obligations under the mortgage. It was not a promise to pay the mortgage liabilities if the borrower failed to do so.  The court held that the language of this clause taken by itself was ambiguous, but looking at the other clauses in the guarantee it should be read as a direct promise to pay the mortgage liabilities as they fell due and created a liability in debt which it could petition in bankruptcy. 

This decision is useful as it sets out the different types of guarantees and when a creditor can pursue a guarantor for bankruptcy.  However, if a guarantee is merely a “see to it” obligation then the creditor would need first to obtain a judgment for the payment of a specific sum and then commence bankruptcy proceedings.

McGuinness v Norwich and Peterborough Building Society  [2011] EWCA 1286

The Guidance, which should be referred to by all businesses engaged in the recovery of consumer credit debts (e.g. debt collectors, banks and law firms), sets out the standards that the OFT expects all parties engaging in the recovery of such debts to adhere to.

The Guidance is divided into the following chapters:

1. Introduction. This sets out how the ‘fitness test’ under section 25 of the Consumer Credit Act 1974 applies to debt recovery activities;

2. Overarching principles of fair business practice. This sets out the FSA’s overarching principles of consumer protection and fair business practice that apply to all debt recovery activities. This chapter explains that businesses should treat debtors fairly, be transparent, exercise forbearance and consideration, and act proportionately. They should also establish and implement clear, effective and appropriate policies and procedures (especially for dealing with vulnerable debtors);

3. Unfair or improper business practices. This sets out the behaviours that the OFT considers to be unfair or improper business practices for the purposes of section 25(2A)(2) of the Consumer Credit Act 1974 (e.g. using Facebook or Twitter to contact debtors.) If these are engaged in, they may call into question a person’s fitness to retain, or be granted, a consumer credit licence;

4. Regulatory compliance and enforcement. This outlines the OFT’s approach to securing compliance and provides information on the regulatory options available to the OFT.

The OFT has said that it will shortly update its Irresponsible Lending Guidance to reflect this revised version of Debt Collection Guidance.

Court of Appeal decision

On 24 October 2005, a possession order was made against Mr Zinda, which was not to be enforced as long as he paid £96.02 per month towards the unpaid instalments in addition to the current instalments under the mortgage. The order was made by virtue of the Administration of Justice Act 1970 section 36 which gives a court the power to stay or suspend possession orders if it appears to the court that the borrower is likely to be able to pay any sums due under the mortgage within a reasonable period.

On 20 March 2008, the bank agreed to consolidate Mr Zinda’s remaining arrears and add it to the outstanding balance of the loan.  Mr Zinda fell into arrears again and the bank applied for a warrant of possession.  Mr Zinda alleged that because of the arrangement with the bank, the effect of the consolidation was not only to clear the arrears, but to extinguish the possession order.  The bank conceded that the effect of the consolidation was to clear the arrears. The Court of Appeal therefore considered the effect and meaning of the possession order.

Mr Zinda’s challenge was to the order made in September 2010 in relation to a warrant for possession based on the possession order. The Court of Appeal noted that the possession order itself had never been challenged on appeal and therefore it remained a valid and effective order, properly made and binding on the parties.  The question the Court of Appeal considered was what was the meaning and effect of the words requiring Mr Zinda to pay “in addition” “the current instalments under the mortgage”?

The Court of Appeal pointed out that these words are used in contradistinction to the arrears.  This referred to the future instalments payable under the mortgage.  The effect of this limb of the order was to require Mr Zinda to pay his existing contractual obligations, namely to pay the instalments.  These extended to the end of the mortgage term.

Mr Zinda complained that this led to an unfair result since it would lead to an indefinite death sentence.  However, the Court of Appeal held that the effect of the possession order did not vary the terms of the contract .  His liability was the consequence of entering into the contract, his own default and of his support under the Administration of Justice Act which provides for terms when a possession order can be stayed or suspended. In any event he could still apply to vary or revoke any of the conditions, he could seek an order suspending any warrant for possession and if six years have elapsed since the possession order was suspended it could not be enforced without the permission of the court.

Comment

Accordingly, where a suspended possession order has been granted there is no need to incur the expense of issuing new proceedings following any subsequent default and the bank can rely on the original possession order. The order will remain valid and binding.  As the Court of Appeal explained if six years have passed, it will be necessary to obtain permission of the court and it is open to the defendant to apply to suspend the warrant on the basis of s36 (4) of the Administration of Justice Act 1970, which provides that the court may from time to time vary or revoke any condition imposed. 

There are already signs, however, that the courts themselves may be unhappy with the outcome of this case and the implication for borrowers that once they have paid off the arrears, the possession order still hangs over their heads.  A number of District Judges recently have specifically ordered that once the arrears have been cleared that the order is discharged.

Lenders themselves have concerns whether this decision sits comfortably with their TCF principles.  Many prefer to treat the order as discharged once the arrears have been cleared.  Starting fresh proceedings affords the borrowers a much longer period of time in which to hopefully address the arrears or find alternative means to resolve the position rather than issuing  a warrant based on the original possession order.  The counter argument, however, would be the additional cost to the borrower of commencing fresh proceedings which would not necessarily satisfy TCF principles.

The solution would appear to be an assessment on a case by case basis to include an analysis of the account history since the arrears were cleared and the amount of time that has elapsed since the original possession order and/or the arrears were paid in full.

Justin Zinda v Bank of Scotland Plc [2011] EWCA Civ 706

The growth in the letting of property and the effects of the recession have resulted in an increase in the number of evictions of unauthorised tenants. As a consequence, the previous Labour Government introduced the MRPTA 2010, which came fully into force on 1 October 2010, in order to protect residential tenants by ensuring that they are entitled to a reasonable period of notice to leave a property if their landlord is repossessed

In short, the MRPTA 2010:

1. Gives courts the power to postpone a possession order for up to two months (thus allowing tenants the opportunity to find alternative accommodation); and

2. Requires lenders to give notice of the proposed execution of the possession order.

Further comment on the Act is available here.

The Guidance aims to inform lenders, landlords and tenants of their rights and responsibilities under the MRPTA 2010.

 The judge refused permission for the representative to act as advocate taking into account that:

•  the representative had “sailed very close to the wind” as regards conducting litigation on behalf of the claimants in the past without the necessary permission, contrary to the Legal Services Act 2007.  There was some concern as to whether the representative was charging for his services although the judge was prepared to proceed on the basis that he was not charging in this case;
• the claim was based on unparticularised but serious allegations including conspiracy to defraud, and the representative appeared to be encouraging the claimants to make these allegations when there was reason to doubt that he had given adequate thought to the proper basis (if any) for making these allegations.  The defendants had a legitimate interest to be protected by the safeguards that the law regarded as proper in such cases;
• there was conflict of interest between the claimants; and
• there had been many applications over a relatively short period with claimants losing application after application.  The lender had added their costs to the security so far.  These applications suggested that the representative did not have the necessary judgment and experience to decide which applications should be made and when, and how they should be best presented.

Following this case and in the light of the increase in the number of litigants in person, the Master of the Rolls and the President of the Family Division has now published helpful guidance on this issue:

 http://www.judiciary.gov.uk/docs/pub_media/mckenzie-friends-practice-guidance-july-2010.pdf

Francis & Ors v Barton Bridging Capital Ltd & Anor [2010] EWHC 152

There is a concern that the FSA’s latest proposals are not proportionate. Moreover, the Industry itself has already done much to put its house in order and to ensure responsible lending. Self certification and interest only facilities have assisted many customers onto the housing ladder or to keep their homes. The majority used self certification for speed and convenience, to assist them through temporary financial difficulty, to repair their credit rating and return to the ‘high street’ or through necessity but not as a means to inflate income.

Regulation should protect the vulnerable while allowing the majority informed freedom of choice and the right to make their own decisions. In a recovering market where there are already limited choices and products, we do not want to regulate the market to the point where lenders may leave, leaving consumers with limited or even no choices.

Mr Cowey and Ms Cowlam charged their property in favour of the claimant, Annulment Funding Company Ltd.  The claimant provided funds to bankrupts to obtain, as their name suggests, an annulment of their bankruptcy.  Following annulment, the intention was that the former bankrupt would obtain a mortgage from another lender to pay off any prior charges on the property.  The funds advanced by the claimant were short term at a level of interest to reflect the fact that the borrower was bankrupt and not in a position to borrow elsewhere. 

In August 2007, Mr Cowey and Ms Cowlam signed a mortgage deed in favour of the claimant over their house in order to obtain an annulment of Mr Cowey’s bankruptcy.  The annulment was obtained.  Efforts were made to find a mortgage lender to repay the claimant, but those efforts were unsuccessful.  As a result, the loan from claimant, which was meant to be short term was not repaid and claimant called in the loan.

At first instance, the court decided that Ms Cowlam entered into the charge as a result of the actual undue influence of Mr Cowey and the claimant was bound by that.   Mr Cowey had taken advantage of Ms Cowlam and caused her to enter into a transaction which was very much against her interests. They had both misunderstood the position and had not realised that they had agreed to enter into a charge over their house.

 The claimant appealed on the basis that the original defence had relied upon an inference of undue influence or presumed undue influence and it was not open to the judge to make a finding of actual undue influence.  Somewhat unsurprisingly this appeal did not succeed.  Secondly, the claimant argued that there was insufficient evidence to have made a finding of actual undue influence, but again the Court of Appeal rejected this ground of appeal. 

In addition, the claimant asserted that although the charge could be set aside, the loan should be allowed to stand as Ms Cowlam had understood that she was entering into a loan.  However, a finding that Ms Cowlam was liable to repay the loan and a judgment against her would mean that it would be open to the claimant to obtain a charging order. Although the claimant argued that it was possible to sever the part of the transaction which is not affected by the undue influence, the court held that both the loan and the charge were disadvantageous and both were affected by undue influence.  Accordingly no question arose of severing a part of this transaction. 

 Annulment Funding Company Limited v Cowey and Cowlam [2010] EWCA Civ 711

Using this remedy means that lenders can demand that rent is paid to them directly from tenants which can then be used towards the account which is in arrears.  This also acts as an alternative to repossession and LPA receivership appointments.

If the property is in negative equity, the lender may be best served delaying repossession and using the above method until property prices once again rise to a level once where the lender will not suffer a shortfall should it repossess and sell.

It is also a feasible alternative to appointing an LPA receiver as such a receiver will only collect rent so the lender can do it directly and avoid extra fees. 
Some lenders of course may still wish to appoint an LPA receiver as it may not have the resources to deal with the administration involved with direct rent collection but at least this is an additional option.

The lender should ask the borrower to sign an assignment containing a fixed charge over the rental account held by the landlord together with an assignment of the landlord’s/borrower’s right to receive rent.

Some borrowers would likely welcome this as an option as it may mean that they get to keep the property until they are able to arrange their finances.

The security assignment must be registered at Companies House to bind liquidators and notice of the assignment must be given to the tenant.

The investigation found that there were 25 High Court cases in 2009, compared to only one case in the previous five years. Claims were brought against valuers for many reasons, including:

• negligently overvaluing commercial premises that dropped in value because tenants became insolvent during the recession;
• negligently overvaluing residential property development sites which dropped in value because of falling house prices and a big increase in similar new build properties built during the housing boom;
• negligently underestimating the cost of putting a development project on hold; and
• negligently valuing a property that was subject to a fraud.

Banks and building societies have launched legal action against surveyors, claiming that they had overvalued properties that they had repossessed and been forced to sell for much lower sums. However, surveyors have hit back at these claims, stating that many of these properties had securitised loans against them and that lenders, rather than valuers, were to blame for the upward pressure on prices.

14,373 mortgage possession claims led to orders being made, which was 15% lower than in the first quarter of 2009. 

46% of mortgage possession claims led to suspension orders being made, which was a similar figure to the first quarter of 2009.

“The money which is received by the mortgagee, arising from the sale, after discharge of prior incumbrances to which the sale is not made subject, if any, or after payment into court under this Act of a sum to meet any prior incumbrance, shall be held by him in trust to be applied by him, first, in payment of all costs, charges, and expenses properly incurred by him as incident to the sale or any attempted sale, or otherwise; and secondly, in discharge of the mortgage money, interest, and costs, and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof.”

The highlighted part is what I want to discuss as the rest is quite standard. 

When a mortgagee sells a property and is left with a surplus following redemption of its charge, where should it be sent?  If there is a second registered legal charge, this is usually simple.  The surplus should be sent to the second mortgagee or its representatives.

In my opinion, the situation is not as simple when the next registered entry is not a legal charge.  Some interpret the above highlighted passage to mean that they are entitled to simply pass the surplus to the proprietor of the next registered entry.  I do not agree.

If the next entry is a Restriction pursuant to a Charging Order against the beneficial interest of one of two owners, does the beneficiary of the Charging Order qualify as being “entitled to the mortgaged property”?   In my view it does not.  The beneficiary’s interest is in the proceeds of sale of the interest of the debtor in the property.

For example, let us say that Mr and Mr Smith own the property as joint tenants.  There is a first legal charge to Bank X.  Bank X  has repossessed and sold the property.  Bank X’s charge has been fully redeemed and the next entry is a Restriction in favour of Bank Y pursuant to a Charging Order against Mr Smith’s beneficial interest for an unpaid credit card bill.

Bank Y would only be entitled to up to 50% of the surplus funds in respect of Mr Smith’s interest and Mrs Smith would  be entitled to 50% in respect of her interest.  Sending Bank Y the entire surplus, in my view, is a recipe for disaster as Bank Y would probably utilise the whole of surplus in discharge of the debt owed to it. and ignore, or be oblivious to the fact, that it is only entitled to up to 50%.  Bank X will then face a potential complaint/claim by Mrs Smith for sending her share of the surplus as well.

As a matter of course, we request a settlement figure from the lender and then send it what it is entitled to.  If it is the full 50% of the surplus, we then distribute the remaining 50% correctly.  This involves more work for us but it is better  to distribute the surplus correctly rather than leave our client open to a claim by its borrower.

Some just cannot understand this concept.  A first mortgagee can sell a property free of any subsequent charges registered against a title. 

The relevant legislative provisions for this are Section 104 Law of Property Act 1925 and Section 52 Land Registration Act 2002.

Some solicitors acting for a purchaser know this but still ask us to confirm the fact.  Some however, whether solicitors or subsequent lenders, just do not comprehend it.

I recently had a conversation with a fellow solicitor on this point.   She just could not understand the fact that as my client sold the property as first mortgagee, her client’s second charge was overreached and automatically removed by the land registry upon production of the executed Transfer.

She kept insisting that we needed consent from her client or a DS1 to remove its charge.  No matter how many times I informed her that she was incorrect, she just could not understand it.

I think I finally made her understand when I asked her what the point of having a first legal charge was if the lender could not sell free of subsequent charges.  Why would a first mortgagee be bound by subsequent mortgages?  She had no answer for this question.

I have not heard from her since.  I suspect she researched the point and discovered I was correct.

When it does appear, it is usually the first indication that the lease may be a shared ownership lease.

Some mortgagees, especially when they are taking a second charge on a property, instruct its solicitors that they do not need to check the lease when certain criteria are met.

Indeed, some mortgagees do not even use solicitors when securing an advance by way of a second legal charge and again, they do not insist on seeing a copy of the lease.

The above statement should therefore act as a warning.  I have seen many smaller lenders make seemingly sound second charge advances only to discover that when the first mortgagee repossessed and sold, there were insufficient funds to pay the second charge.  This was because the lease was owned on a shared ownership basis with 50% of the sale proceeds payable to the housing association.

Therefore, whatever the lender’s policy, if you see the above statement or notice that the original landlord was a housing association, check the lease to make sure.  Sometimes the Land Registries do fail to register the above statement even when the lease is owned on a shared ownership basis but this is quite rare.

It is always advisable to instruct a solicitor to check the lease in any event.

The changes are designed to encourage mortgage lenders to provide funds in the purchase of these properties.

The changes all involve the Mortgagee Protection Clause claim.  The mortgagee will now be able to claim the following when staircasing and selling the property following repossession:

1.  All loans advanced by the mortgagee secured by way of a first charge over the property if the advances were approved by the Housing Association.

2.  18 months’ of interest (up from the initial 12 months’).

3.  Amounts advanced by the mortgagee in protecting its security by paying arrears of rent and service charges.

4.  Fees and costs of enforcing the mortgagee’s security capped at an amount equal to 3% of the market value of the leasehold interest at the time of enforcement, i.e. 3% of the 100% staircased interest.

The last one is the main difference between the old and new regime.  The mortgagee can now claim, inter alia, administration fees, early redemption charges and capitalised interest as long as it falls within the 3% threshold.  These could not be claimed under the old regime.

This is very significant for mortgagees as the shortfall they will now suffer will be much lower than under the old regime.  If the mortgagee acts swiftly, it is possible that it may not even suffer a shortfall at all. That would be novel.

Both parties to the litigation were innocent parties duped by a third party, but which party was going to miss out; either the claimant who suffered from Korsakoff’s Psychosis, a severe medical condition which affected her understanding, memory, insight, cognitive faculties and judgment or the defendant, a lending institution.  

The claimant had been swindled into parting with her property and the lender had granted a charge over the property.  The inspection of the property by the lender was a “drive-by” inspection by a surveyor, who noted signs of occupation. 

As the Court of Appeal noted, some of the facts pointed to Ms Bustard’s continuing actual occupation:  it was her furnished home and the only place to which she genuinely wanted to return; she continued to visit the property because she still considered it her home; those who had taken responsibility for her finances regularly paid the bills.  On the other hand when the lender’s charge was taken she had been in a residential home for over a year; she was incapable of living safely in the property and her visits to the property were brief and supervised.

The court decided that the first instance decision that Ms Bustard was a person in actual occupation should not be disturbed.  It was not a mere fleeting presence.  There was a sufficient degree of continuity and permanence of occupation, of involuntary residence elsewhere, and of a persistent intention to return home when possible, as manifested by her regular visits to the property.

The case provides further meaning to the expression “in actual occupation” although obviously the facts of this case were unusual and such a situation is likely to be rare in practice. 

Link Lending Limited v Ms Susan Bustard[2010] EWCA Civ 424

I met the news of the introduction of HIPs like most conveyancers, with some concern, but I now concede that in most instances, they have assisted the conveyancing process.

My main concern was and still is the reliability of the local search contained within the pack.  Due to time and cost, most HIPs contain a personal search which is obviously not as reliable as a search conducted by the local authority.

There is also a concern that one cannot market a property until he has a market ready HIP.  This can cause delay but some HIP providers can now produce a market ready HIP within 24 hours so this is not as problematic as it may have been to begin with.

The final concern is that due to the fact that a proposed seller must pay for a HIP, there are less sellers placing their properties on the market speculatively in the hope of achieving a price that they simply cannot resist.  On the other hand, this does weed out sellers who are not serious about selling their property.

Having said all of this, I would not like to see HIPs abolished.  The plain fact is, like them or loathe them, they do speed up the conveyancing process and when acting for a mortgage lender in the sale of a property, speed is very important.

Some providers are actually using “exchange ready HIPs” with legal documentation such as the agreement for sale included.  I am not convinced this is necessary or wise as what is the next step?  Will the HIP provider be exchanging contracts soon as well? 

If anything needs to change, I would like to see local authority searches becoming a mandatory part of the HIPs rather than allowing personal searches.  This would improve the quality of the HIPs at least.

Without HIPs, we would basically see a return to the times when many sales fell through before they even reached the halfway stage.

Should they win the next election, the Conservatives should concentrate on improving the HIPs rather than abolishing them.

Fast-forward to the end of 2009 when I visited my previous place of employment and I was informed that 95% of the lender’s mortgage underwriters had been made redundant.  I was also informed that the lender would now be content to complete one remortgage per day out of choice.

Mortgage brokers were in abundance and making vast sums of money by way of commission.  Now, many of those same brokers have ceased trading.

Will 2010 be any different for the industry?  Of course, I hope so and there have been some signs in the first four months that it may be different.

There are currently reports that Virgin Money is purchasing certain assets from Northern Rock.  Tesco have moved into financial services, Sainsbury’s bank is considering doing the same.  I understand that Bank of China and Bank of East Asia have dipped its toes into the UK Market and O2 is also considering doing so according to reports.  Aldermore are currently investigating suitable opportunities to enter the UK residential mortgage market and Metro Bank are opening soon advertising that it will be the first bank to open seven days a week.

Rumours in certain publications suggest that as many as thirty new lenders could be joining the market in 2010.  I personally think that this is optimism rather than realism but if half as many do join, then this can only be a positive sign for the lending industry at the moment.

Let us hope these rumours turn out to be true as once mortgage lending returns to anywhere near where it used to be, the housing market can start to recover properly.

As a purchaser, you will of course expect to see such a Special Condition and as a vendor, you will usually be happy to provide it.

The situation does change slightly when the seller is a mortgagee in possession.  Most mortgagees we act for do agree to provide vacant possession but I have some concerns about this.

I have previously, with consent of my client, refused to guarantee that vacant possession will be provided on completion.  On occasion, I have also seen contracts that state the seller will give vacant possession but can make no guarantees that the property will be vacant or words to that effect.

There is a reason for this.  The property remains unoccupied whilst it is in possession of the mortgagee and although the selling agents are required to make regular inspections, once contracts are exchanged, the agents may lose interest as they know it is a “done deal” and they will be paid their commission. 

My concern is the fact that between exchange and completion, anyone could break into the property, be it squatters or the mortgagors and whilst my expertise in litigation is limited, I know it takes time to evict said squatters/mortgagors.  The client will then be in breach of contract if unable to evict them before the completion date.

Thankfully, I have yet to face this problem personally and it is only a small risk but it only takes one such occurrence for a mortgagee to change its policy.

Failure to provide a guarantee of vacant possession is not something most purchasers would readily accept but there is a way around this.  The best solution is to exchange and complete on the same day and the buyer can of course inspect the property immediately before exchange and completion take place to ensure it is vacant.

“Restriction:  No disposition of the registered estate is to be registered without a certificate signed by the applicant for registration or his conveyancer that written notice of the disposition was given to ABC Limited being the person with the benefit of an interim charging order on the beneficial interest of Mr Joe Bloggs made by the Newport County Court on 13^th January 2010 (Court ref 7XY1234)”.

The wording of the Restriction seems to suggest that by serving notice, a seller will satisfy the terms of the Restriction and a purchaser will be registered as the new owner.

However, there is more to it that this. ABC Limited obtained an interim charging order against Mr Bloggs.

Therefore, even though they do not have a legal interest in the land, they do have an equitable or beneficial interes, i.e. an interest in the proceeds of sale and they must be repaid when the property is sold by the owners.  This is on the assumption that ABC obtained a final charging order of course.

The seller and his solicitors will be hold the sale funds as Trustees and will be responsible for repaying the charging order in full.

Simply serving notice and thinking that the solicitor’s job is done may well lead to a negligence claim.

I know some mortgagees are willing to sell with Limited title guarantee but had I ever been instructed by a lender who wanted to do so, I would advise firmly against it.

The main reason for this is that one of the implied covenants by a seller when transferring a property with Limited title guarantee is that the seller covenants that with the buyer as follows :  “the transferor has not charged or incumbered the property by a charge or incumbrance which still exists, that he has not granted any third party rights which still subsist and that he is not aware that anyone else has done so since the last disposition for value”.

The words I  have highlighted provide the fundamental difficulty.  Most of the mortgagees we act for have hundreds if not thousands of employees.  It is not possible or practical for a mortgagee to give this categorical assurance. For example, had the borrower written to the lender to inform them that he had granted a right of way to his neighbour to cross his land for some reason, this would constitute notice.

It is not unheard of for mortgagees to even agree to such a right and then lose the correspondence confirming this agreement.  If for some reason the neighbour had yet to register the right, the mortgagee would breach the above covenant by not disclosing this fact.  It is also not unheard of that one department within a bank may have notice of something and not disclose it to another department.

This is just a basic example and there are also other implied covenants when transferring with Limited title guarantee that I would not feel comfortable for a lender client to give.  However, this implied covenant is the most obvious reason why I believe that a mortgagee should sell  with “no title guarantee” which is quite standard.

Most solicitors acting for a buyer may not be happy to accept this but when meeting resistance they should be asked to consider the following:-

(a)      the CML handbook does not make it a condition that Full or Limited title guarantee must be provided by a seller. It only requires that the borrower charges the property to them with Full title guarantee; and

(b)      the statutory protection of purchasers from mortgagees afforded by the Law of Property Act 1925.  The implied covenants of Limited title guarantee do not offer substantially more protection than the statutory provisions.

Accordingly I can see no reason why a mortgagee should sell with anything other than “no title guarantee”.

Charges Register:

1.  Equitable charge in favour of Random Name Limited.

2.  Legal charge in favour of our client.

The question is which one has priority and will be entitled to take the funds due to it first when the property is sold? Many conveyancers do not know the answer to this and the position is not as simple as it may seem.

In the above scenario, the answer is:  it depends.  It depends on the date each charge was created and the type of charge, i.e. whether the charges are legal or equitable.  Notice that I said “created”, not “registered”.  Unlike Registered Legal Charges, an equitable charge is not afforded any priority against competing financial charges on the basis of when it was registered against the title alone. 

Had the position above been reversed, the legal charge would always have priority regardless of when it was created.

The date of creation is the important date when considering an equitable charge.  If the equitable charge was created on 10^th January 2010 but the legal charge was created on 9^th January 2010, the legal charge has priority despite the fact that the former was registered first.  The relevant statutory provisions for this are sections 28 and 32 Land Registration Act 2002 (“LRA”).

If the equitable charge was created and registered before the legal charge, it would have priority as registering it against the title preserves any priority it may have.

When dealing with competing legal charges, the position is much simpler in accordance with section 48 LRA in that the first registered charge has priority.

Landlords of residential properties where the annual rent is more than £25,000 are not currently required to register a tenant’s deposit with a tenancy deposit scheme but they will  need to protect that deposit before 1 October 2010. Failure to do so will result in a Landlord falling foul of the requirement to protect a tenant’s deposit in accordance with the provisions of the Housing Act 2004, leaving them open to a claim by a tenant for failing to register the deposit.

For tenants this change means greater protection as they will be afforded the rights granted to them under the Housing Act 1988. Landlords face potential claims against them for failing to register a tenant’s deposit. The change will of course impact Landlords with expensive properties in London where rents are higher than the rest of the country as well as Landlords of larger properties which are occupied by multiple tenants such as student houses where the rent is more likely to exceed the current threshold.

The changes will increase the number of tenancies coming within the Assured Shorthold Tenancy regime which will standardise procedures for Landlords to gain possession and allow use of the accelerated possession route (only open to Landlords of Assured Shorthold Tenancy Agreements).  Landlords who do not and who are required to register a tenant’s deposit will be unable to get possession of a property on a “no fault” basis until the deposit is registered, causing unnecessary delay.

Landlords – review rental levels register your deposits without delay.

Managing Agents – notify your Landlord clients immediately of the impact of this change and the steps they need to take.

We are already seeing cases in the County Courts regarding non-registration of deposits and no doubt Court offices across the country will see further cases next year arising out of these changes.

By comparison, usually with a buy-to-let mortgage, the tenancy will be binding on the lender.  If the lender wants vacant possession, it has to comply with the provisions for termination under the tenancy agreement and usually the tenant will have two months’ notice.

 The Act is intended to make sure that unauthorised tenants are not given very limited notice that their home is about to be repossessed.  The Act provides that: 

• The unauthorised tenant will have a right of audience at the possession hearing.  In practice, if the tenant attended the possession hearing, a district judge would usually let them be heard, but this now ensures that they have a formal right to do so.   
• On application by the unauthorised tenant, the court has the ability to postpone the date for delivery of possession for a period not exceeding two months.
• Once a possession order is made, the court has the power to stay or suspend the enforcement of the possession, for a period not exceeding two months, if the court did not make an order at the initial possession hearing.  The unauthorised tenant can only do so if they have asked the lender to give an undertaking in writing not to enforce the order for two months and the lender has not given this undertaking. 
• Once the lender obtains a possession order, the order may only be enforced if the lender has given notice of any prescribed step and only after the end of a prescribed period.  At present this prescribed step and prescribed period has not yet been defined, but it is likely to consist of the service of a notice and it is believed that the prescribed period will be 14 days, which will run concurrently with the possession order.

 When deciding whether to exercise its powers, the court must have regard to the circumstances of the unauthorised tenant and whether the tenant has breached any of the terms of the unauthorised tenancy, the nature of the breach and whether the tenant might reasonably be expected to have avoided breaching that term or remedied the breach.

 In addition, the court may make any postponement or stay conditional on the payment to the lender in respect of the occupation of the property during that period of the postponement or stay.  The Act states that any such payment will not be regarded as creating or providing evidence of any tenancy or right to occupy the property.

 As yet, there is no date for when this Act will come into force.  Overall the impact of this Act will give unauthorised tenants more time if faced with eviction, but equally it is likely to lead to further delay for lenders.  In order to avoid any delay, it may be sensible for a lender to check whether anyone is living at the property prior to seeking enforcement.

Land Registry Direct (“LRD”) is a wonderful website.  In the bad old days before it was available, one had to order official copies by telephone and wait for them to arrive in the post.  Thanks to LRD, the whole conveyancing process became much swifter. 

Ordering official copies, bankruptcy searches and copy documents such as leases became a matter of clicking a few buttons and most of the time, the results were obtained instantaneously.

This wonderful service is now going to be discontinued from 30th April 2010 and replaced by the new Land Registry Portal. 

The new Portal is now live and I have been using it for a few weeks.  I must say, my initial concerns were correct in that it is slower than LRD.  We seem to be pressing more buttons to obtain the same results and whilst that sounds complacent, in the current environment, speed is everything.

I am hopeful however that this is down to teething problems as on the whole, the system is very similar to LRD.  Only time will tell.

When a lender uses this word, it means that they do not want to hold any “unnecessary” documentation following their charge being registered at the Land Registry.  The solicitor acting for the purchaser/borrower/lender therefore usually sends any such documents to the borrower/purchaser.

Such documents  can include, but are not limited to, leases, NHBC or equivalent guarantees, planning permissions and building regulation certificates.

Whilst one can understand that lenders do not wish to pay for the storage space for these documents, these documents may well be required if the lender takes possession of the property and wishes to sell it.

Although most planning documents can be obtained from the local authority and duplicate NHBC certificates can also be obtained, this is at a cost and had the lender kept the documentation in the first place, that cost could have been avoided.  It also takes time to obtain copies and for every day a sale is delayed, further interest accrues and  the lender’s potential loss increases.

There is also the added problem that if the property was registered with NHBC or Zurich, it may have been registered or described by way of the plot address which the solicitor may not know.  The solicitor will usually only have the postal address of the property.

Furthermore, in some cases of new build properties, lenders rely on a professional consultant’s certificate as opposed to a conventional guarantee. In that case there is no central organisation where copies can be obtained, nor will it be easy to track down and identify the professional that gave the certificate.

As a solicitor acting for a lender, I often find myself writing to the solicitor who completed the mortgage advance for my client, asking them for copies of such certificates.  This takes time and again costs my client money, thereby increasing the amount of the potential loss

Leases may also be difficult to obtain in certain cases.  In a number of cases I have had, the Land Registry has failed to retain a copy of the lease.  I have had to obtain a copy from the landlord if he is traceable and contactable. 

These problems can be avoided if the lender insists on receiving some basic, but important documentation on completion of the mortgage advance.

In my view dematerialisation is a false economy.

 The key arrears proposals:

• Make plain that firms must not add early repayment charges on arrears charges and interest levied on those charges;
• Clarify that firms must not apply a monthly arrears charge where the firm and the customer have agreed an arrangement to repay the arrears;
• Compel firms to consider all options for borrowers.  Repossessions should always be the last resort;
• Confirm that payments by customers in financial difficulties must first be allocated to clearing the missed monthly payments, rather than to arrears charges, which can be repaid later; and
• Oblige firms to record all arrears handling telephone calls and to keep all records for three years.

• The consultation is on a proposal to require mortgage lenders to obtain a court order or the consent of the borrower before repossessing and selling residential owner-occupied homes.
• The proposed changes would put current lending practice into law, and ensure that borrowers can access the protections offered by the court.
• The proposals relate to residential owner-occupied properties and would not affect buy-to-let mortgages or other commercial loans, nor affect other remedies available to mortgage lenders where a borrower defaults on a mortgage.

http://www.justice.gov.uk/latest-updates/mortgages-power-sale.htm

As the Judge acknowledged,  the risk of the tenancy being a forgery was remote, but if no inquiries are made of those in occupation then the bank “misses out because of it.”

HSBC Bank PLC v Amanda-Jane Margaret Dyche Alfonso Collelldevall  [2009] EWHC 2954 18 November 2009