Mortgage repossession may be deferred

LAW REPORT 5 January 1996

National & Provincial Building Society v Lloyd; Court of Appeal (Lord Justice Neill, Mr Justice Bennett); 6 December 1995

The court could defer the grant of possession of mortgaged property to the lender where there was clear evidence that the defaulting borrower would be able to complete a proposed sale of the property within a specified period, even if that might take a year. There was no rule restricting such deferment to a much shorter period.

The Court of Appeal so ruled when allowing an appeal by the plaintiff, National & Provincial Building Society, against the decision by Her Honour Judge McKinney, sitting in Bournemouth County Court on 15 May 1995, to suspend an order for possession, which the deputy district judge had granted to the society on 28 March 1995, and to allow the defendant, Geoffrey William Lloyd, until June 1996 to complete proposed sales of mortgaged properties.

Ali Malek (Dibb Lupton Broomhead, Leeds) for the building society; Patrick Hamlin (Heald Nickinson, Camberley) for the borrower.

Lord Justice Neill said that by a mortgage dated 25 June 1992 the defendant had borrowed pounds 280,000 on a 25-year term (interest-only) loan charged on two properties, a farm in Cardigan and premises in Wareham, Dorset. He soon fell into arrears with the monthly interest payments and in 1994 the society brought possession proceedings claiming pounds 335,000 including principal.

In March 1995 the defendant swore an affidavit in which he referred to sales of parts of the farm land and an offer for the Wareham property which, on completion, would realise pounds 199,250 to reduce the mortgage debt. In a further affidavit, sworn the day of the appeal hearing before Judge McKinney, he referred to other expected sales and an offer which was expected to reach completion in June 1996.

The judge held that the suspension of the possession order, under section 36 of the Administration of Justice Act 1970 as amended by section 8 of the Administration of Justice Act 1973, had not been fully considered before the district judge, and that this was a case to which it applied.

She concluded that "there are provisions which could result, not on an idle or fanciful basis, but on a firm basis - not contractual but firm - for raising considerable sums of money"; that it was in the society's interests "that the best price be obtained"; and that the defendant's liabilities could be met if the possession order were suspended.

The society argued that such deferment should only be ordered where the prospects of an early sale were best served by allowing a mortgagor time and, furthermore, that any such deferment should be short.

It was true that the authorities, both at common law and in cases on section 36 of the 1970 Act, had suggested that any suspension or adjournment to enable a sale would only be allowed if a sale would take place within a short period of time (see, in particular, Royal Trust Co of Canada v Markham [1975] 1 WLR 1416 per Sir John Pennycuick); but his Lordship did not understand there to be a rigid rule of law to this effect.

If there were clear evidence that the completion of the sale of a property, perhaps by piecemeal disposal, could take place in six or nine months or even a year, there was no reason why a court could not conclude in the exercise of its discretion that, in the words of section 36, "the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage". The question of a "reasonable period" would be a question for the court in the individual case.

In this case, however, his Lordship agreed with the society that the evidence adduced on the defendant's behalf was insufficient to entitle the judge to make the suspension order. Much of it was a mere expression of hope.

In this class of case, where the mortgaged property was to be sold and there were no known outside assets, the question was whether it was likely that the mortgagor would be able to pay the sums due under the mortgage, including the capital sum, within a reasonable period.

With the greatest respect to the judge, his Lordship concluded that the evidence available to her did not establish that this was so. In these circumstances, the appeal must be allowed and the suspension order revoked.

Mr Justice Bennett agreed.

Paul Magrath, Barrister