Mortgagee in possession

The following Property Disputes practice note provides comprehensive and up to date legal information covering:

  • Mortgagee in possession
  • Rights
  • Obligations

Mortgagee in possession

This Practice Note covers the rights and responsibilities of a mortgagee in possession.

Rights

A legal mortgagee has a right to possession of the property. However, this can be limited by contract or statute (eg section 36 of the Administration of Justice Act 1970).

The mortgagee is entitled to possession without notice or demand, and usually without a court order.

Where there is no court order, possession:

  1. does not require physical occupation of the land, but

  2. does require the mortgagee to have taken over the management of the property

(See Noyes v Pollock.)

However, a mortgagee may avoid possession and appoint a receiver instead, particularly if the property is let. This is because possession comes with responsibilities and liabilities.

Obligations

A lender who exercises a power to repossess and sell the mortgaged property is under an obligation to the borrower to see that a proper price is obtained. Lenders should not delay in enforcing their rights (National Westminster Bank v Ashe [2008] All ER (D) 128 (Feb)).

If a lender elects to take possession of the property it takes on a range of duties, including:

  1. a duty to account strictly to the borrower—the lender must account for any surplus achieved on a sale and for income earned when in possession. However, obligations in relation to the fabric of the property can go further. For example:

    1. if a

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