Repossession claims against third parties

It is not unusual for mortgagees on seeking possession for mortgage arrears to discover that the property on which the mortgage is charged is occupied not by the mortgagor but a third party. And when the third party is an undisclosed tenant the tenancy will not bind the mortgagee in most circumstances; nor can the tenant step into the shoes of the mortgagor by paying the mortgage (see Britannia Building Society v Earl [1990] 2 All ER 46 CA). But when the occupier is a friend or family member the mortgagor is faced with a difficult problem: should they negotiate and protect their security by accepting payments or treat the third party as a trespasser?

Beneficial rights

If the occupier is a spouse or civil partner they will have matrimonial home rights in any event (s 30 Family Law Act 1996) and the mortgagee has no option but to negotiate with the occupier as mortgagor. If the occupier is not a spouse or civil partner the mortgagee can simply seek possession against the occupier as a trespasser. But what if the occupier claims a beneficial right, claiming, for example, that they have contributed indirectly to the payment of the mortgage, and offers to continue payments: should the lender accept, thereby risking the creation of third party equitable rights? In practice lenders sometimes accept payments, making it clear that any payments will be treated as being paid for and on behalf of the borrower so as to avoid the creation of an equitable interest.

However, the supposed protection against establishing an equitable right in the third party appears illusory in the light of a recent decision of Mr Justice Sedley. The claimant, UCB Home Loans, sought possession against the borrower of a residential property on the grounds of arrears. The property had been occupied from the date of purchase by a cousin of the borrower, his wife and children. After the breakdown of the marriage the wife and children remained in occupation and the husband stopped paying the mortgage. The wife's case was that the mortgage was obtained and the property registered in the name of the cousin against her wishes and she issued a claim for a declaration that the property was held in trust by the cousin for herself and her husband. That case is due for hearing in July immediately before her case for ancillary relief in the divorce proceedings. The cousin and husband denied the wife's claim for a beneficial interest and asserted a tenancy in the name of the husband. The cousin brought a claim for possession against the wife. The wife applied to be joined to the possession proceedings brought by UCB who did not oppose her application and stated in a letter that if the wife did not oppose their claim for possession they would not enforce possession if the mortgage and arrears were paid and they would treat any payments made by the wife as on behalf of the cousin.

The wife was joined and a possession granted to UCB not to be enforced if conditions were met as to payment of the arrears and mortgage. The wife did not fulfil the conditions in the first instance but ultimately paid the arrears in full, a sum of over £11,000. However, she almost immediately fell into arrears again and UCB obtained a bailiff's warrant.

Suspended warrant

The wife applied to suspend the warrant relying on s36 of the Administration of Justice Act 1973 which provides: 'Where the mortgagee... brings an action ... the court may exercise any of the powers conferred on it by subsection (2) below if it appears to the court that in the event of its exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage.'

Subsection (2) includes the power to stay or suspend execution of a judgment or 'postpone the date for delivery of possession for such period or periods as the court thinks reasonable.'

The lender argued that the wife was not the mortgagor; the mortgagor opposed the wife's claim and said the court had no jurisdiction to grant her any relief at all; the wife argued that the letter written to her by the lender together with the payment of arrears created an estoppel requiring the lender to treat her as the mortgagor. She relied on that fount of equitable justice Lord Denning in Robertson v Minister of Pensions [1949] 1KB 227 for the proposition that ' if a man gives a promise or assurance which he intends to be binding on him, and it is acted on by the person to whom it is given, then, once it is acted upon, he is bound by it.'

Sedley J agreed and granted suspension of possession on conditions pending the conclusion of divorce proceedings.

Lenders now appear to be between a rock and a hard place in such circumstances, but the outcome will be good news for third parties and family members who have contributed to the purchase of property which they continue to occupy.