Property Law - The Home Repossession Protection Bill

On 15th May 2009, The Guardian Newspaper reported that in the first quarter of 2009, over 12000 homes in the United Kingdom were repossessed. That is to say, that the mortgagee, the legal owner of the property, sought to exercise his right to immediate possession from those mortgagors to whom they he money on the security of the property and who subsequently fell into arrears as a consequence of the economic recession.

At a time when public trust in members of Parliament is evaporating nearly as fast as the economy, there is little, if any publicity given to the Home Repossession (Protection) Bill introduced by Mr Andrew Dismore (Hendon) (Lab) under Standing Order No 23 which was given its first reading on 3 February 2009 (Hansard 3 Feb 2009 HC Deb Cc 702-705).

There are fundamental disagreements over what a mortgage actually is and what its social function should be. The lending industry, at base, sees mortgages as a financial product. Lenders are not a branch of the social services, nor the engines of economic and social change. They have shareholders and targets. Necessarily, they favour “light touch” regulation. For institutional lenders, mortgages are debts secured by proprietary rights in land. Their essence is that the borrower should lose possession in the event of default, for that is their point. Anything which contradicts this central tenet is an anathema. Of course, responsible lenders will want borrowers to repay the debt themselves--and more profit is made through ongoing interest payments than by repossession and sale--and they will wish to avoid the exercise of remedies whereby they have the effort and responsibility of selling, especially in a failing housing market. But, in the view of the lending institutions--and in the view of the law as it stands--a mortgage is a debt secured on land which must be repaid and will be repaid either from the proceeds of sale or by personal action against the borrower.

However, residential borrowers tend to see mortgages in a different light. The home-aspiring man on the Clapham Omnibus sees mortgages as a tool--a tool allowing him to acquire a home that is his, rather than belonging to a landlord to whom he must pay “wasted” rent. Many borrowers--often encouraged by willing lenders--have seen access to mortgages as a right--everybody, after all, apparently has the “right” to own their own home. So, mortgages are not so much debts secured on property, but an engine for the acquisition of personal financial security through home ownership. Despite the pre-mortgage warnings offered by all responsible lenders, by the Financial Services Authority Mortgage Conduct of Business (MCOB), borrowers simply do not understand that lenders have a right--a cast iron proprietary right--to seize possession and sell in the event of default.

Prior to the collapse of confidence in the banks and the massive government ‘bail-out’ by the taxpayer, daytime television was awash with lenders offering that ‘homeowner loan’ or ‘equity release’ as the quick and easy means of affecting a much-needed home improvement, or long dreamt of and well deserved retirement cruise, or to pay for daughters wedding. Such mortgages being created by a charge over the property by deed expressed to be by way of legal mortgage under section 85(1) Law of Property Act 1925.

The terms of mortgage contracts are not subject to any test of fairness to consumers beyond very weak regulatory controls. Protection against negligence liability, contractual liability and unreasonable indemnity clauses which exist to protect ordinary consumers under the Unfair Contract Terms Act 1977 specifically exempt mortgage contracts under section 1(2) and Schedule 1 of the 1977 Act. Mortgage terms are therefore not subject to any test of reasonableness under Section 11 and Schedule 2.

Protection against usurous interest rates under section 138 Consumer Credit Act 1974 were, by a series of judgements from the Court of Appeal, distinguished out of existence. Thus, for example, in Barcabe v Edwards [1983] CCLR 11 a County Court Judge thought if ‘prima facie’ exorbitant to demand repayment at the rate of 100% when similar lenders were lending at 20%. In Paragon Finance v Nash [2002] 1 WLR 685, the interest rates demanded by the mortgagee were almost doubled. Dyson LJ emphasised that what was required was not that such rates were exorbitant, they had to be ‘grossly’ exorbitant and agreed that although the rates imposed upon the couple were ‘high’, even ‘unreasonably high’, it was insufficient to be regarded as ‘grossly exorbitant’ for the purpose of section 138(1).

In Paragon Finance Plc (formerly National Home Loans Corp Ltd) v Pender [2005] EWCA Civ 760; [2005] a mortgagor attempted to defend a possession action claiming the lender was not entitled to enforce the variable interest rates powers. They alleged there was an implied obligation on the lenders not to exercise the power to vary interest rates capriciously or in an improper manner. The Court of Appeal held that whilst there was authority that this fetter on variation to interest rates was available, it did not apply in this case. If a lender with a view to forcing a borrower to refinance or forfeit his rights were to single out a borrower and deliberately raise rates beyond the level that that borrower could afford, such a situation might fall within the potential doctrine. Wherever there is a bona fide commercial reason for exercising the power to vary interest rates, which is not applied on a targeted basis to individual borrowers, there can be no room for the implication of such a fetter thus leaving it open for a corporation to ‘securitise’ its own business liabilities by raising interest rates and other charges on mortgage loans to extort money from mortgagees as a class who could not afford to repay, sell the home at a profit in a rising housing market and then pursue the defaulting mortgagee for a period of 12 years upon their personal covenant to repay.

During the 1980s and 1990s, it was generally assumed that before the mortgagee could liquefy his asset and realise his security, that he was obliged to proceed against the mortgagor by way of originating summons to exercise the legal powers incident to his legal estate or interest under section 101 Law of Property Act 1925 exercisable subject to the conditions at section 103. Once the mortgagee discharged the burden of proving the mortgagor’s default, he would find his ability to exercise his common law right to possession of his property arising out of his legal interest in the land limited under section 36(1) Administration of Justice Act 1970 (hereinafter ‘AJA’’) allowing the court a discretion to adjourn the application proceedings, stay or suspend the execution of its judgement or order for possession, or postpone the date for delivery of possession upon the giving of its judgement or the making of an order for such period or periods as the court considers to be reasonable.

The question of whether the mortgagees common law right to possession was exercisable at will or was entirely abrogated by statute was addressed by the Court of Appeal in the highly controversial but little-publicised case oof Ropaigealach v Barclays Bank [2000] QB263 which inflicted serious damage to the principle that a mortgagee was required to apply to the court for possession proceedings

In that case, Mr Seorise Ropaigelach issued an originating summons for a determination on whether Barclays were entitled to take possession of his home and sell it at auction without first seeking an order of the court. In 1988 Mr R and his wife had mortgaged their North Wales property by way of legal charge to Barclays Bank. Barclays demanded repayment of the outstanding amount defaulted upon and although they notified the couple by letter, both Mr and Mrs Ropaigealach were away at the time they were received. When they returned, the had discovered that Barclays had in their absence, affected a peaceable re-entry to the premises and sold the property at auction. When Mr Ropaigealach found out of the sale by a neighbour, he issued proceedings ex parte to restrain the sale.

The case was heard by Chadwick LJ on 26-27 October 1998 with judgement being given on 27 December that year. He began with an analysis of the wording of section 36(1) AJA and concluded that that it was expressed to apply only when the mortgagee brings an action in which he claims possession. In other words, the section was procedural and only capable of being exercised in the context of existing proceedings in which a claim for possession was being made. There was therefore no restriction on the wording of the section which restrained the exercise of the mortgagee’s rights under section 101 which included, inter alia, his power of sale. Neither did section 126 Consumer Credit Act 1974 requiring a mortgage secured by a regulated agreement to be enforced ‘only on an order of the court’ because the amount of money loaned greatly exceeded the maximum amount the 1974 Act brings within a 'regulated' agreement.

Chadwick LJ arriving at his conclusion albeit reluctantly was not prepared to cross the line between judicial interpretation and judicial creativit. In his view any abrogation of the mortgagee’s right to possession must be a matter for Parliament and not the courts.

Despite ground shifting beneath the feet of the mortgagor, the case went unnoticed by all except the financial services industry and academic lawyers. Parliament had either not heard or had turned a tin ear since the tabloid press had not reported it or decided to make it a cause celeb!

The issue lay dormant for a decade until October 2008 when it came before Briggs J in the High Court of Chancery in Horsham Properties Group Ltd v Clark [2008] EWHC 2327 in the context of the Human Rights Act 1998 which had not been around at the time Ropaigealach had been decided. Moreover, facts went beyond a mere peaceable entry to exercise the mortgagee's powers.

Horsham, to which Mr Dismore attaches approbriam arose out of a claim for possession by the mortgagees GMAC RFC Limited of a residential dwelling at 119 Walderslade Road Chatham, Kent. Paul Clark and Carol Beech were the registered proprietors who had charged the property under section 85(1) Law of Property Act 1925 as security for a loan. They fell into arrears. Rather than enter into peaceable possession, GMAC appointed a Receiver under section 101(1)(iii) LPA 1925 as provided for under the mortgage contract who then, in accordance with the mortgage agreement contracted to sell the property by action. It was transferred to Coastal Estates Limited who transferred it to Horsham Properties Group (Horsham) Ltd on the same day who then issued proceedings for possession claiming that the defendants were trespassers since their rights in relation to the property had been overreached by the receivers sale to Coastal under section 2(1)(iii) Law of Property Act 1925.

The defendant, Miss Beech claimed that the exercise of the power of sale without either a court order, or without the mortgagee first obtaining an order for possession (in which case she could have claimed the benefit of section 36 AJA) amounted to a violation of Article 1 of the First Protocol the European Convention on Human Rights and Fundamental Freedoms 1953 incorporated into domestic law under section 1(1) Human Rights Act 1998 which protects the right to peaceful enjoyment of possessions without interference by the state. If not, was it possible for the court to construe section 101 LPA 1923 under section 3 HRA 1998 as requiring that provision to be read/or given effect to in such as way as to give effect to the Convention right by requiring the mortgagee to make such an application before selling the mortgaged property? If not, could the court then go on to make a declaration of incompatibility with convention rights under section 4 HRA 1998?

Biggs J held that although s101(1)(iii) LPA 1925 gave the mortgagee the power to appoint a receiver, that provision did not give the receiver a statutory power to sell the property. Miss Beech lost her equity of redemption because the contract to which she was a party conferred that power. It followed therefore, that there was no State intervention at all [that would have engaged the vertical effect of the HRA 1998 and the Act itself is not horizontally effective]

As for section 101 LPA 1925, Biggs J held that the provision was no more than ‘conveyancing shorthand’, it simply implements and gives effect to the parties private bargains and does not overreach them. In any case, section 101(4) applies the section subject to a contrary intention of the parties. It is therefore far removed from the concept of state intervention into private rights through overriding legislation which lies behind Article 1 of the First Protocol.

Biggs J went on to hold that even if Article 1 was engaged, the exercise of the mortgagee’s remedies in these circumstances, even without a court order and without first taking possession was justified in the public interest since it reflected the critical importance of a mortgagee being able to realise its security. There was, therefore, no need to search for proportionality in the exercise of remedies on a case by case basis. In any event, he was bound by the Court of Appeal’s judgement in Ropagealach.

The case therefore affirms that the Human Rights Act has no horizontal application in private matters but only vertically when state action causes the Convention to be engaged.

It would seem therefore that there is judicial support for the view that the function of the mortgage is inconsistent with the 'home-aspiring view of the man on the Clapham Omnibus' and firmly of the view that its central function is that of a mere commodity in the market economy. The judgement confirms that the mortgagee may realise his asset without recourse to the court and that any examination of the proportionality of the exercise of such private rights is not the business of the courts – that such private ordering of affairs is very much the business of the contracting parties despite the lack of real statutory protection against the use of unconscionable and unilaterally imposed contractual terms, the inequality of bargaining power and the lack of control over usurous interest rates and no opportunity of bringing the issue before the court to restrain power of the mortgagee to exercise his power of sale under section 101.

Mr Dismore’s Bill, if enacted in its present form inserts section 1(B) into section 1(1) LPA 1925 making it mandatory for the mortgagee to apply to the court to exercise his powers under section 1. Under the draft Bill, the incorporation of section 1(C) allows the court to exercise discretionary powers under 1(D) similar to those contained within section 36(1) AJA where it appears to the court that the mortgagor may be able to pay of the sums due under the mortgage in a reasonable time or to remedy any default arising under or by virtue of the mortgage.

The effect of Mr Dismore’s Bill, if enacted would be to reverse the result of Ropaigealach as extended by Horsham and to make applications to the court for repossession mandatory rather than discretionary as they are at the moment. However, it is suggested that in many cases, it may serve no purpose other than to delay the inevitable, add greatly to the costs and resisted by the mortgage industry who will point to their codes of practice which are usually self-policing and largely ineffectual. If receent events prove anything at all, it proves that the financial sector cannot be left to operate under weak or ineffectual 'guidance' or trusted to act in a socially responsible manner.

The present system of self-help does not allow judicial scrutiny of the mortgage contract many of which contain harsh and unconscionable terms as mortgagees have availed themselves of weak statutory controls over terms that may be legitimately inserted in, say, consumer contracts. It is suggested however that the courts should, in the absence of any real statutory control over contract terms, exercise their inherent jurisdiction and common law powers to strike down those terms that are manifestly unfair, unjust, result in unconscionable penalties for minor defaults or raise unreasonable charges added to the mortgage account for minor administrative tasks such as answering letters or are entirely one-sided if, at the time the mortgage agreement was signed, they were not present, and only later incorporated under a variation clause which the mortgagor had no real chance to influence, such as, for example, Paragon Finance v Pender [2005] EWCA Civ 760, in which the Penders, having signed the mortgage agreement, and then registered as proprietors, subsequently had, under a variation clause, a completely new and more onerous set of standard terms incorporated such as: “Interest on any loan shall be charged at any such rate as the Company shall from time to time determine.... with effect from such dates as the Company shall determine.”.

Mr Dismore’s Bill is to be read for the second time on 26 June 2009.

I am no Labour supporter, as those who know me will testify, but I sincerely hope that Mr Dismore is able to elicit the support he needs for his Bill.

 

I really hope that comes up as the essay question in my Land Law exam tomorrow.

I love it when arrse is both random and useful.

Thanks

 

Hansard HC Deb 26 June 2009 Column 1110WH

Home Repossession (Protection) Bill now to be read a second time on Friday 3 July 2009.

 

What does that mean in English? Isn't that what we pay lawyers for ?

msr

 

It means that the previous law was shite, and the new one might be better...

 

Put simply, it is an MP actually doing the job we pay him to do - to represent our interests in Parliament. What is here being attempted is to invoke the coercive jurisdiction of the court to prevent the strong exploiting the weak through the manipulation of ignorance for financial gain by treating the family home and those who occupy it as little more than disposable items in a commodities market.

While unlawful phycial violence rightly attracts the intervention of the courts, powerful corporations and lenders are free to inflict social violence which is as equally devastating to lives. Here we have an example of it which this Bill seeks to address by subjecting the unscrupulous to the rule of law.

 

So what does this mean for the man on the street?

The mortgage company are going to find it harder to chuck him out of his house if he falls behind on the repayments?

msr

 

See hyperlink (supra) to Hansard:

"This Bill is about a very important human right: the right not to be thrown out of one’s home without a court order. .........A recent court judgment now allows unscrupulous lenders to sell people’s homes over their heads, without having first to go to court, when even just one mortgage payment has been missed...."

To state it any more simply would be to reduce the explanation down to the level of an imbecilic soundbyte.

 

Hansard HC Deb 3 July 2009 Column 665WH

The Government have again delayed the second reading of this bill which is now scheduled for Friday 16 October 2009.

 

After allowing Mr Dismore’s draft Bill to lapse before its second reading, the Ministry of Justice have today placed into the public domain a consultation documeent Power of Sale and Residential Property.

The consultation paper, is accompanied by a four-page questionnaire invites public response by 4 March 2010.

It is significant that the consultation paper makes no reference to Mr Dismore’s Private Members Bill and significantly, the consultation closes shortly before the expected date of the next general election.

Given the failure of the government to address the issues raised as a consequence of the judgement in Horsham Properties when it allowed the Bill to lapse, one must question the Government' motives for a decision to 'consult' during the dying days of its existence.

It is doubtful whether there will be any Parliamentary time allocated to such any legislative change this side of a general election. It is therefore reasonable to infer that the consultation paper is a further political exercise in 'form over substance' the purpose of which is to attract votes in return for the implied promise of reform.

 

I don't wish to be a party-pooper here, but surely if the Courts make the exercise of security by banks more difficult they'll be less willing to lend?

 

The practical effect of the legislation if the fantasy bill were ever enacted would not make it any more difficult for a bank or any other lender to recover possession of property from a mortgagor in default, it would simply submit the processes by which he seeks to recover possession open to judicial scrutiny.

The current wording of the Law of Property act in using the word 'may' instead of 'shall' in relation to judicial proceedings for recovery has been judicially interpreted as meaning that the lender has an 'option' of initiating proceedings instead of a duty to do so in the event of default. It means that since there is no judicial oversight of the methods used by the lender to affect recovery, there is no impediment to the uses and abuses of self-help remedies (some of which have been articulated in the first post on this thread) with all of the social consequences that such measures entail.

 

You talk like my divorce lawyer. Notwithstanding, a very interesting article. The mortgage companies have put themselves into a very advantageous position and should be reigned in a little.

 

Don't go blaming anyone other than those who borrow money they cannot afford to replay.

msr