Mortgagor Protection
Scope of the Act
Unlike the case in Ireland, there is a statutory power in England and Wales for a court to adjourn a claim for possession or to grant an order which is suspended subject to conditions. Outside of this legislation, there is generally no power for courts to adjourn a claim unless there is an arguable defence.
The Administration of Justice Act allows a court to adjourn proceedings for possession of under a mortgage of a dwellinghouse. The court may adjourn the proceedings, if it appears that by exercising the powers, the mortgagor is likely to be able within a reasonable period to pay the sums due under the mortgage or to remedy the default concerned.
The court also has power under the legislation to make an order for possession (where there is no prospect of payment within a reasonable time) which is “stayed” or suspended for a period and is made subject to conditions. A typical condition would be worded to allow the mortgagor to undertake a private sale within a certain period.
Once a possession order has been executed the court’s powers terminate. The Act does not restrict a mortgagee’s right to take peaceable possession or appoint a court receiver without a court order. The Act is not available to tenants.
Allowing More Time
An adjournment may be granted subject to such conditions with regard to payment by the mortgagor or in relation to remedying the default, as the court thinks appropriate. Under the Administration of Justice Act, the court looks at whether the mortgagor will be able to pay off the current installments (including arrears) over a reasonable period. The court has power to disregard the accelerated payment obligation arising from the default
The following practical matters are relevant considerations in determining what is a reasonable period. Ultimately, the exercise of the powers is discretionary and each case in different.
- how much the borrower can pay now and in the future;
- what is the reason for the arrears;
- whether the reason is likely to last;
- how much time is left on the mortgage period;
- what type of mortgage is involved;
- the value and future value of the security;
- the risk to the value of the security;
- whether it is reasonable to expect a lender to recover interest over the term within a shorter period;
- whether it is reasonable for a lender to recover interest over a longer period by extending the repayment period;
- whether it is reasonable to expect the lender to capitalise interest.
An adjournment may be appropriate, where there is temporary illness or unemployment.
The court only exercises power if it appears that the mortgagor is likely to be able to pay the amounts due within a reasonable period, together with interest on those amounts.
Suspending or Staying a Court Order
The court may suspend or adjourn a possession claim, if the prospects of a sale at a higher price would be more favourable with the mortgagor in occupation than on the basis of a repossessed property. The court should consider the possibility of a sale being achieved if enforcement of possession is “stayed” (suspended) subject to certain conditions.
The suspension may be subject to such conditions as the court considers appropriate. The court should take account of the value to security, the size of the debt and whether any delay in sale would reduce the extent to which the mortgage debt would remain secured. The court should take account of the value of the security compared with the size of the debt.
If the sale proceeds would not discharge the whole mortgage monies, the court will not generally exercise its powers unless other monies will be available to pay the balance.
If the court decides to suspend the sale, it should identify the relevant period. The court may allow the owner to remain in possession to allow the owner to sell. The court must be satisfied that the presence of the mortgage will enhance the value of sale and the mortgagor will co-operate in effecting the sale.