I can distinctly remember my university lectures on mortgages. Not the content – I don’t think I ever really understood that – but the “gap” that existed (and still exists) between the popular understanding of what a mortgage is and what, in law, it amounts to. In particular, I remember being amazed that a mortgage was, in effect, a right to immediate possession of the property, regardless of whether there was any default on the part of the borrower (the right to possession arises “before the ink is dry” as it was put in various cases).
That unqualified* right to possession has come to the fore again in Thakker v Northern Rock Plc  EWHC 2107 (QB) (Lawtel only from what I can see). The facts are quite simply (and, in my experience, common). Northern Rock had lent £242,000 to Mr & Mrs Thakker to allow them to buy a house. There were some further advances so that just over £259,000 was eventually secured against the home. Mortgage payments were missed and possession proceedings issued.
Mr & Mrs Thakker sought to defend (and counter-claim) the proceedings on the basis that they had an equitable set-off, in particular, the bank had been in breach of the Mortgage Conduct of Business Rules made under the Financial Services and Markets Act 2000 (now the Mortgages and Home Finance: Conduct of Business sourcebook – see here). The argument was that the damages could be applied to reduce or extinguish the arrears (and, pausing there, that argument plainly is right).
The bank applied to strike out the defence, contending that it wasn’t a defence to a possession claim, following the decision in National Westminster Bank Plc v Skelton  1 WLR 72, where it was held that:
… the bank’s claim is one simply for possession, not payment. The general rule established by long-standing authority is that except in so far as his rights are limited by contract or statute, a mortgagee by way of legal charge is entitled to seek possession of the mortgage property at any time after the mortgage is executed: see, for example, Mobil Oil Co. Ltd. v. Rawlinson, 43 P. & C.R. 221 ; Barclays Bank Plc. v. Tennet (unreported), 6 June 1984; Court of Appeal (Civil Division) Transcript No. 242 of 1984 and Citibank Trust Ltd. v. Ayivor  1 W.L.R. 1157 .
Faced with this argument the Circuit Judge granted the application; the argument could work as a counter-claim for damages, but not as a defence to a possession claim; the right to possession was absolute. The counter-claim might give rise to sufficient funds to enable the judge to exercise the discretionary powers under the Administration of Justice Acts of 1970 and 1973, but it didn’t impeach the right to possession itself.
An appeal to the High Court was dismissed. In the absence of a contractual provision postponing the right to possession in the event of a failure to comply with the relevant regulatory provisions, there was no basis for saying that the right to possession had not arisen. The judge was fortified in this view by the fact that Defending Possession Proceedings didn’t mention the possibility of such a defence.
Now, this is what I mean about the “gap” between popular understanding and the law. Very, very few people realise that their mortgage company has (unless the contract provides something else) an absolute right to possession, even if the mortgage company have broken all the regulatory codes going (or similar). It would, I think, come as a shock to them to learn that such default by the bank wasn’t a defence to a possession claim per se, but was, at best, a possible source of damages which might be used to reduce arrears so as to bring the discretionary powers of the court into play.
I confess that I don’t really see why mortgage companies should have an absolute right to possession; the modern (residential) mortgage is very different in structure and usage from that found in 1925. Why shouldn’t the mortgage company have to prove some operative default before a discretionary power for possession arises? How is an absolute rule compatible with the rights of the occupier under Art.8 and A1/P1, ECHR (‘tho, I accept, the 1970 and 1973 Acts might solve any incompatability). Perhaps the authors of DPP might consider asking if we can come up with an arguable defence that they could mention in the next edition? :-)
*unless qualified in the mortgage deed itself, but the point is that it is unqualified as a matter of general law