The trouble with mortgage repossessions

The trouble with mortgage repossessions

Nigel Clayton, a barrister at Kings Chambers in Manchester, Leeds and Birmingham, advises that the judgment in the Campbell case calls for a clearer protocol to manage mortgage repossessions in an effective and proportionate way.

Original news

Campbell v Redstone Mortgages Ltd [2014] EWHC 3081 (Ch)

What issues did this case raise?

This was the trial of a preliminary issue on liability in a claim brought by a borrower (C, a litigant in person) against a lender (R) following the repossession of C’s residential property (a farm) after protracted and difficult mortgage possession proceedings which had been ongoing since 2007.

C’s principal complaint was in respect of the disposal by R of personal property which C claimed she had been unable to remove from the farm, either prior to or after the repossession. Her claim for injunctive relief was struck out and was ordered to proceed on the issue of liability only, namely whether C had a right to claim damages as a result of R’s disposal of the goods. It was common ground that R was an involuntary bailee of the goods.

C also issued separate proceedings seeking possession of the property following repossession on the ground that her mortgage deed had been perpetrated by fraud in that it had not been validly executed in the presence of a witness contrary to the Law of Property (Miscellaneous Provisions) Act 1989, s 1(3) (LP(MP)A 1989). While that claim had been struck out, and an appeal for permission to appeal to the Court of Appeal dismissed, as being totally without merit, C sought to raise the same issue in a yet further claim which was adjourned to be heard with the trial of the preliminary issue.

Thus, as the judge directed himself at para [101], he had to decide two issues:

  1. whether C was entitled to have the mortgage set aside for failure to comply with LP(MP)A 1989, s 1(3)
  2. whether R was liable to C in damages as involuntary bailee in respect of the disposal of her goods following repossession

However, the case also raised another, fundamental, issue. The vast majority of the judgment is given over to a recital of the protracted and difficult nature of the mortgage possession proceedings which involved countless and largely vexatious applications for a stay or suspension of various warrants of possession, including numerous appeals to the circuit judge and to the High Court judge. How do you effectively case manage the repossession of property against a vexatious litigant who has nothing to lose?

To what extent is the judgment helpful in clarifying the law in this area?

The first issue—whether the mortgage was validly executed—didn’t really get off the ground. The court was highly critical of C’s misconceived and vexatious attempt to challenge the earlier decision of the court to strike out the claim as being totally without merit (and of the Court of Appeal to refuse permission to appeal for the same reason) and there was no reasonable prospect of getting around this by seeking to bring in fresh evidence which couldn’t have been adduced earlier on Ladd v Marshall [1954] 3 All ER 745 principles. C’s claim was also an abuse of process since it sought to attack a final decision of the court in the original possession proceedings (which assumed the validity of the mortgage), and C would also be estopped from taking the point, after herself having made payments under the mortgage and having sought on numerous occasions to stay or suspend enforcement of the mortgage.

In any event, as a matter of substantive law, there is a clear distinction between those cases in which the mortgage deed is regular on its face and purports to be properly executed (in which an estoppel would operate in favour of validity—Shah v Shah [2001] EWCA Civ 527, [2001] 4 All ER 138) and those cases in which the mortgage deed is not on its face properly executed (and in which an estoppel in favour of validity would not operate—Briggs v Gleeds [2014] EWHC 1178 (CH), [2014] All ER (D) 143 (Apr), Bank of Scotland Plc v Waugh [2014] EWHC 2117 (Ch), [2014] All ER (D) 217 (Jul)). The present case fell into the Shah category, and C would be estopped from denying the validity of the mortgage deed.

As to the bailment point, this case inevitably turns on its facts, but the decision is certainly helpful in confirming a few key principles:

  1. depending on the terms of the mortgage conditions, and any order the court may make, an order for possession requires the mortgagor to deliver up vacant possession of the property
  2. the mortgagee becomes an involuntary bailee of goods left behind on the property
  3. at common law the obligation of an involuntary bailee is to do what is right and reasonable in the circumstances, which depends upon the findings of fact in each case
  4. the mortgage conditions provide a framework within which the common law duty of care is to operate

The law was helpfully reviewed in Da Rocha-Afodu v Mortgage Express Limited [2014] EWCA Civ 454, [2014] All ER (D) 212 (Mar).

The judgment inevitably involves a careful recital of the steps taken by R in managing the repossession and dealing with subsequent requests to recover possessions. It had affixed clear notices on the property giving seven days to remove property and had complied with three subsequent orders to permit access (over a one month period) to remove property. The court found that R had made every attempt to facilitate access and was ultimately entirely justified in disposing of goods (which ran into several lorry loads) left behind which, because they had no intrinsic value, did not justify storage or sale.

Unfortunately, the judge did not address the rather more fundamental issue of case managing the repossession of mortgaged property against a vexatious litigant.

What are the implications for lawyers, and what will they need to be mindful of when advising clients?

This case raises some useful reminders for both lenders and borrowers. For lenders first of all, it is worth actually checking that the mortgage deed is regular on its face, and at least appears to have been properly executed. All too often mortgage deeds slip past lenders’ solicitors and securities departments without even the most cursory glance. There is no excuse for not heading-off a Gleeds/Waugh defect.

In addition, it is worth remembering that you are not necessarily home and dry following the execution of a warrant. Dealing with goods left behind on mortgaged property has always been a messy job, and the starting point is to check, and comply with, the mortgage conditions because this forms the framework against which the court will gauge your conduct (and a borrower may have a claim for breach of contract). Remember too that there is no substitute for bending over backwards to accommodate requests to recover personal property (and having an audit trail of evidence of the steps taken to comply).

For borrowers, remember that there is no point in saving for a rainy day any potentially knockout points on liability. It starts raining on the day your lender calls in your mortgage and carries on raining for a long time afterwards. As this case demonstrates, the borrower was largely ruled out of court in pursuing a claim based on the validity of the mortgage deed because she hadn’t taken the point earlier.

If you really want to recover property left behind on the premises, don’t mess about. Remember that if you haven’t delivered up vacant possession at the time the bailiff’s warrant is executed, you are on the back foot and depending on the mortgage conditions you may have no further right to seek recovery. If you are offered an opportunity to go back in, take it.

And while this case doesn’t demonstrate it (because proportionality went out of the window), do bear in mind that unless you have a knockout point, it is all well and good presenting your lender with an obstacle course to repossession designed to beat even the SAS, but they will at least be comforted in the knowledge that you are paying them to have a go. Costs are invariably added to the security. If there is likely to be any equity left in the property always have regard to cost/benefit.

Are there any patterns or trends emerging in the law in this area? What are your predictions for future developments?

This was a fairly desperate case, and desperate cases as we know tend to push the boundaries of established case law. From time to time lenders have had to face challenges from borrowers that they do not have a contract of mortgage signed by both the lender and borrower, sufficient to satisfy the requirements of LP(MP)A 1989, s 2. This has now largely died a death, with the Court of Appeal consistently holding that LP(MP)A 1989, s 2 has no application to mortgage deeds (see Eagle Star Insurance Co Ltd v Green [2001] EWCA Civ 1389, Helden v Strathmore [2011] EWCA Civ 542, [2011] All ER (D) 92 (May) etc), so now, borrowers are turning their attention to the formal validity of the mortgage deed itself. In the vast majority of cases this won’t be a problem. The mortgage deed will have been validly executed, or at least will appear regular on its face so as to raise an estoppel in favour of validity, but as a belt and braces, lenders should double-check and if in doubt, ask for (and keep a note of) confirmation of execution from the completing solicitors.

Your final observations on the case?

Let’s not beat about the bush—this was a hugely vexatious exercise. It involved countless claims, applications and hearings. C had no real substantive defence.

Anyone reading this judgment will get the tenor of the whole thing. C borrowed £0.5m with no prospect of repaying it, and apparently no intention of doing so either. As soon as one district judge had dismissed her application for a stay, she applied for another, and another, and occasionally appealed to the circuit judge, only to apply back to the district judge for yet further stays when her appeals were dismissed.

The court has, in its limited armoury, the case management power to direct that no further application be made without permission (of a particular district judge), but when these applications are being made in quick succession, how is a responsible lender expected to manage an eviction? And when the circuit judge and Court of Appeal dismiss the borrower’s appeals as totally without merit but do not make a civil restraint order, realistically what is to stop the borrower from issuing further claims?

This judgment makes depressing reading, but regrettably, it is not all that uncommon. What it calls for is a clearer protocol to manage mortgage repossessions in an effective and proportionate way.

Further reading

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Execution of deeds and contractual agreements (Subscriber access only)

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First published on LexisPSL Banking & Finance

Nigel Clayton specialises in mortgage law and litigation and has appeared in several high-profile mortgage cases. He was recently ranked in the Legal 500 as a leading junior of the highest calibre in property and mortgage law. Nigel also sits as Civil and Chancery Recorder.

Interviewed by Kate Beaumont.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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