Q&As

Does a mortgagee automatically become a mortgagee in possession if it enforces its security? Why does it matter?

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Produced in partnership with Brian Cain
Published on LexisPSL on 22/05/2018

The following Banking & Finance Q&A produced in partnership with Brian Cain provides comprehensive and up to date legal information covering:

  • Does a mortgagee automatically become a mortgagee in possession if it enforces its security? Why does it matter?
  • Summary
  • Mortgagee right to possession
  • Liabilities of mortgagee in possession
  • Becoming a mortgagee in possession
  • Effect of the exercise of security holder’s remedies

This Q&A discusses the circumstances where a security holder with security over land may become a mortgagee in possession upon exercising its rights of enforcement. It also outlines in broad terms why most security holders will want to avoid that result.

For general information on taking security over land, see Practice Note: Taking security over land and for a discussion of enforcing security over land, see Practice Note: Enforcement—security over land.

Summary

There are a number of remedies available to a creditor with security over land and not all of them involve becoming a mortgagee in possession. In fact, the exercise of the most common remedies being the power of sale and the appointment of a receiver will not, without more, make the security holder a mortgagee in possession. Being a mortgagee in possession gives rise to a number or potentially onerous duties or liabilities and most security holders will want to avoid becoming a mortgagee in possession for that reason if they can.

Mortgagee right to possession

A legal mortgagee has an immediate right to possession of the property (Birch v Wright and National Westminster Bank plc v Skelton) by reason of the legal estate vested in it. This right is normally postponed by the mortgage terms until there has been a default. An equitable mortgagee is usually given a similar right to possession—postponed until default—by the express

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