What are the regulatory requirements for a mortgagee seeking repossession?
The first charge upon a residential property, conventionally referred to as a mortgage or residential mortgage, allows a lender to secure money lent to purchase the property. These mortgages are regulated by the Financial Services and Markets Act 2000. These mortgages do not usually require a court order to take possession of the property, although it is the recommended by the Council of Mortgage Lenders to obtain possession orders if repossession is sought. This is the reason that the term mortgagee repossession relates ordinarily to second mortgages securing some kind of loan.
Unlike a first mortgage, a second charge (also known as a second mortgage) will almost always be regulated under the Consumer Credit Act 1974. This is because second charges are ordinarily in respect of a loan to an individual or a business which is secured by the lender on a property.
The requirements to be satisfied by a lender (or mortgagee) seeking to repossess a property under a mortgage granted to it, which is regulated by the Consumer Credit Act 1974, are different to those which a mortgagee holding a first charge securing the purchase monies.
What are the key differences between first (residential) and second/commercial mortgages?
First (Residential) Mortgages
- Usually the lender or mortgagee can take back possession without a court order as the mortgage document will usually provide for this.
- Although lenders do not need an order from the court, the Council of Mortgage Lenders (CML) recommend that lenders obtain an order for possession against the debtor or mortgagor before taking back possession.
- If possession is granted the debtor can apply to the court for an order disallowing the mortgagee/lender’s costs.
Second and Commercial Mortgages
- Regulated by the Consumer Credit Act 1974 (CCA 74).
- Mortgagees can only recover possession of land by order of the court (as opposed to a first mortgagee who can re-enter the premises without a court order in circumstances known as peaceable re-entry) (section 92 of the CCA 74).
- Mortgagees must send out a default notice before they are entitled to terminate the agreement, demand earlier payment, recover possession of any land or most importantly enforce any security (such as a mortgage) (section 87 of the CCA 74).
- The debtor or mortgagor who owes the money can apply for a time order from the court.
- Under the Administration of Justice Act 1970 (section 36), the court can delay (stay for a specified period or suspend conditional upon payment) enforcement of any judgment to pay monies due, or order stating a date by which possession of the property must be given if it thinks the person who owes the money is likely to be able to pay any sums due under the mortgage, or remedy any other breach of the mortgage agreement within a reasonable period. (In practice this means that the debtor or mortgagor can be given time to pay provided that the agreement is continuing. This will however cause problems for people who have mortgage arrears in respect of a commercial overdraft or any other facility which becomes immediately payable on demand).