Property repossession: a quick guide to your rights

With the ongoing cost-of-living challenges, there is a significant increase in property repossessions as homeowners struggle with the burden of meeting their mortgage obligations.

UK Finance reports a 50 per cent increase in the repossession of homeowner-mortgaged properties during the first quarter of 2023, with over 750 properties repossessed.

More than 2.4m fixed-rate mortgages are due to expire by the end of 2024, and with rates soaring, it is likely to be a difficult time for many property owners. 

This article is part of our mortgage crisis series. If you are at risk of a property repossession, our solicitors can help you understand your rights.

Lenders' right to repossession and sale

In accordance with Section 95 of the Law of Property Act 1925 (LPA 1925), a lender holding a legal mortgage has a right to repossess the property over which they hold a charge, except where the mortgage documentation excludes that right (Western Bank Ltd v Schindler [1976]). 

Whilst many mortgage deeds will contain an express provision granting a lender the right to sell the mortgaged property in the event of a default, where a deed is silent on the matter, Section 101 (LPA 1925) implies the lender's power of sale under Section 104 (LPA 1935) into the deed.

Section 103 (LPA 1925), however, caveats a lender's power of sale and requires the following conditions to be met before they can market the property: 

1. Breach – The borrower must have breached a condition of their mortgage, such as their commitment to pay the mortgage money to the lender on time.
    
2. Notice – The lender is required to serve a notice on the borrower informing them of the default.
    
3. Length of breach – The breach of non-payment of monies must have been ongoing for three months from the service of the notice (Barker v Illingworth [1908]). 

Lenders pre-action requirements

Where a lender has complied with the previous requirements, before they can commence a proceeding, they must additionally comply with the behavioural requirements implied by the pre-action protocol for possession claims (PAP).

Lenders do not, however, have to comply with these requirements where the property is vacant (Ropaigealach v Barclays Bank plc [1998], nor when the charge is in relation to a buy-to-let mortgage (PAP, para 4.3). Often or not, lenders in such a circumstance will appoint a receiver to act as their agent, who will help them realise possession of the mortgaged property (Section 109 LPA 1925). 

Repossession procedure

1. Lender contacts borrower regarding their missed payments 

Lenders are required to act fairly and reasonably when resolving any matter concerning mortgage arrears (PAP, para 3.1(a)) and should only commence a possession claim as a last resort (PAP, para 7.1). Paragraph 5.1 of the pre-action protocol states that where a borrower falls into arrears, the lender must provide the borrower with several pieces of information, including: 

• required regulatory information on mortgage arrears;
• information on the current monthly instalments and the amounts paid over the last two years;
• information on the amount of arrears, including the total amount of arrears, the total amount outstanding on their mortgage and whether interest has been added. 

A lender must consider reasonable requests from the borrower where they wish to change the payment date or the payment method. In the event it refuses to do so, it must, within a reasonable period of time give the borrower a written explanation of its reasons for the refusal (PAP, para 5.5). If a borrower proposes a repayment offer, the lender must similarly respond with a written explanation for their refusal within 10 working days (PAP, para 5.6). Furthermore, lenders must consider the individual circumstances of the borrower under paragraph 7.1, and if it is appropriate to either: 

• extend the term of the mortgage;
• change the type of mortgage;
• defer payments of interest under the mortgage.

If an agreement is made and the borrower fails to adhere to the repayment terms, the lender should warn the borrower by giving them 15 business days' notice in writing of their intention to commence a possession claim unless the borrower remedies the breach in the agreement (PAP, para 5.8).  

2. Lender initiates legal proceedings by making an order for possession

A lender seeking possession in its capacity as a mortgagor must serve the borrower with a claim form and an application notice, together with written evidence and a blank form for the borrower to write their witness statement in, within 24 hours of issuing an application with the court (CPR 55.23). 

Under section 36 of the Administration of Justice Act (1970), the court may suspend proceedings if a borrower is able to pay the sums due, including both the arrears and the continuing mortgage payments (section 8(2) AJA 1973) within a reasonable period of time. 

3. Court sets hearing date

Upon service to the court, the hearing date will not be less than 28 days from the date on which the lender issued the claim form (CPR 55.5(3)). 

Within 5 days of receiving notification of the hearing date, a lender must send a notice to the property addressed to 'the tenant or the occupier'. In addition, a lender must send the same notice to the local authority's housing department, as well as any other owner of the property listed on the proprietorship register (CPR 55.10(2)). 

4. Possession hearing 

The borrower must attend any court hearing. The Housing Possession Court Duty scheme can provide free on-the-day legal advice and representation. Only in cases where there are substantial grounds which genuinely dispute the order for possession will the court allocate the case to be tried by another court (CPR 55.8(2)). 

5. Court order

Where a suspended order is made, the borrower must vacate the property if they do not comply with certain conditions, such as paying additional fees on top of their pre-existing mortgage payments. 

Where an outright order is made, the borrower will be required to vacate the property by the date contained in the order, which is usually in between 14-28 days. 

6. Enforcement

In the event an outright order is made by the court or where a borrower breaches the terms of their suspended order, a lender may apply for either a warrant or writ of possession if the borrower does not vacate the property by the deemed date of possession set by the court. In accordance with CPR 83.8A, a lender/enforcement officer is required to provide the occupiers of the property with an eviction notice prior to possession.

7. Sale of the property 

Lenders benefit from prioritising their interests above the borrowers when exercising their right to sale. Whilst they have autonomy as to when to sell the property, they must also comply with the following duties when doing so:  

• Lenders must act in good faith (Downsview Nominees Ltd and another v First City Corp Ltd and another [1992]). Where the interests of both the lender and the borrower conflict, the lender must not act wilfully, recklessly or in a way which unfairly prejudices the borrower. 
   
• Lenders must act with reasonable care and skill (Standard Chartered Bank Ltd v Walker [1982]). Unless the lender sells the property to a connected company, the burden of proof lies with the borrower. In assessing the lender's conduct, the court will focus on how the property has been advertised, the length of time it marketed the property, and how many genuine offers were made before acceptance. 
   
• Lenders must take reasonable care to achieve the best sale price (Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971]). A lender must take reasonable care to achieve the best price reasonably available to them at the time of the actual sale of the property (Dean v Barclays Bank plc [2007]). Lenders must adequately advertise the property to ensure that all potential purchasers are given notice, but they are not required to market the property for a specified period.

Furthermore, if the borrower collaborates with the lender to sell the property at a reduced price, the lender's duty to achieve the best price possible is extinguished. This is often seen when the borrower requires the property to be sold as soon as possible. 

The Financial Conduct Authority further regulates lenders, specifically the Mortgage Conduct of Business Regulation (MCOB 13).

Under MCOB 13, if the sale proceeds are less than the amount owed by the borrower, the lender is obliged to inform the borrower of the shortfall. If the lender wishes to pursue the remaining arrears through an agent, such as a mortgage indemnity insurer, the lender must inform the borrower of their intention within five years of the date of sale of the mortgaged property.

If the proceeds of the sale are more than the amount owed by the borrower, the lender must ensure that reasonable steps are taken as soon as possible after the sale of the mortgaged property to inform the borrower of the surplus and to pay the remaining balance to them, subject to the rights of any remaining charge holders.

Who can and can't a lender sell to?

The sale of a repossessed property can either be conducted by private treaty, where the lender enters into an agreement with a buyer independently after placing the property on the open market or by auction. 

Because of their duties to the borrower, a lender is also unable to sell a repossessed property to either themselves, to a trust where the lender is a beneficiary or to an employee of the lender (Farrar v Farrars Ltd [1889]). The only exception to this restriction is where a lender obtains a court order under Section 91(2) (LPA 1925). 

Furthermore, a lender is similarly unable to sell the repossessed property to a company that it holds shares in unless it can prove that in doing so, it is selling the property in good faith and that reasonable precautions were undertaken to ensure the best price was achieved at the time of sale (Tse Kwong Lam v Wong Chit Sen [1983]).

Contact our property solicitors today

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