Repossession – Your Legal Rights

The majority of loans made by lenders require security and this is increasingly so in today’s troubled economic climate. Having a charge over a specific item of your property allows the lender to recover and sell that item to pay off any outstanding loan due to them. In the majority of cases, especially so for valuable loans, the security will be by way of mortgage. However, the law is conscious of unscrupulous lenders and seeks to protect the mortgagor both before the mortgage or secured loan is agreed and after, when the borrower defaults on the loan, through means such as the Law of Property Act 1925 and the Consumer Credit Act 1974.

Generally speaking the lender has an automatic right of possession over the property since most mortgages are in the form of a long lease. Taking possession is the prelude to sale and once in possession of the property the next step is for the lender to sell. The lender can use reasonable force to take possession, although in doing so risk criminal proceedings. As such possession will usually be obtained by way of court order. Once in possession, the lender must take reasonable care of the property and pay market rent to the borrower if it is a residential property and the lender intends to occupy the premises rather than sell.

We shall now look at the rights of the mortgagor (borrower) on default of a mortgage or loan repayment, focusing on the procedure after the lender has made clear that they wish to repossess. Once a lender seeks possession of a dwelling house, the borrower may be able to postpone the repossession under the Administration of Justice Act 1970, section 36, if they can show that they are reasonably likely to be able to pay any arrears. However, the borrower must satisfy the court that they can meet the debt within a period of time the court finds acceptable and also keep up with future repayments once the arrears have been cleared. Prior to 1996, a court would normally deem a reasonable period of time to be about 2 years. However, a reasonable period may now be the whole term of the mortgage, usually 25 years.

It is important to note that repossession will not be postponed so that the buyer can make arrangements to sell the security themselves; such an order is only made where the borrower demonstrates to the satisfaction of the court that they are able to meet arrears and future repayments.

As mentioned above, the Consumer Credit Act 1974 also offers some degree of protection, allowing for a court to renegotiate any terms of the original loan agreement or mortgage provided that they are considered extortionate and that the loan itself meets certain requirements.

Repossession can also be a stressful time for the spouse of the borrower not party to the original loan agreement. Under the Family Law Act 1996, a spouse with a statutory right of occupation is entitled to make the repayments on behalf of the borrower. However, the lender does not have an obligation to find the husband or wife so as to request repayment.

This article is in no way intended to replace legal advice obtained from a qualified professional. If facing a repossession, you are advised to contact your solicitor immediately.

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