Archive for the 'Mortgage possession' Category

Admit nothing. Deny everything

Published
by
J
on 11/03/2010
in FLW case note, Housing law - All and Mortgage possession
. 1 Comment

Ashcroft v Bradford & Bingley Plc [2010] EWCA Civ 223

Mr Ashcroft purchased a property with the aid of a mortgage from Bradford & Bingley in 1990. He failed to make a single payment and an SPO was obtained in April 1991. He breached the terms of the suspension and the property was subsequently sold by the building society in 1992. The proceeds of sale left a shortfall of c.£30,000.

In 1995 (i.e. 3 years later), the society wrote to Mr Ashcroft to ask how he proposed to pay the shortfall. Mr Ashcroft responded with “indignation at the time it had taken the building society to make the demand” but – in Oct 2000 -  and at the suggestion of the society, agreed to make payments of £10 pcm. These stopped in 2004.

In 2008, the society issued proceedings. Mr Ashcroft contended that they were statute barred. He argued that, by s.20, Limitation Act 1980, the society had 12 years to recover the mortgage loan. On any view, the claim was issued more than 12 years after the right to recover the monies arose. However (argued the society), by s.29(5), time starts to run again from the date when the debtor acknowledges the claim.

The Recorder held that the claim was not statute barred, but granted permission to appeal. The appeal was dismissed. The problem for Mr Ashcroft was that he had made the £10 payments, the effect of which was to bring him within the scope of s.29(5), 1980 Act, and start time running all over again.

I’m not sure if the suggestion by the society that Mr Ashcroft pay £10 pcm was a stroke of genius or not. On the one hand, by acknowledging the debt, it got them out of a potentially tricky limitation period. On the other (as Sedley LJ points out in his judgment), they were potentially giving rise to a binding compromise that would leave Mr Ashcroft paying the debt until 2402 (!) but with a defence to any proceedings (such as the present) so long as he made his payments.

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Ending 'Horsham' possessions?

Published
by
NL
on 30/12/2009
in Housing law - All, Mortgage possession and Possession
. 2 Comments

The Ministry of Justice has issued a consultation document on a proposal to require mortgage lenders to obtain a court order or the consent of the borrower before repossessing and selling residential owner-occupied homes. (The consultation document is here).

This is being touted as bringing to an end the Horsham Properties v Clark & Beech [2008] EWHC 2327 (Ch) (our report here) exception to the Adminsitration of Justice 1970 (and 1973) loophole. See, for example the Inside Housing report or the report in yesterday’s (29/12/09) Guardian – not online. However, the proposals only apply to residential properties with residential mortgages.

As readers will recall, Horsham concerned possession of a property occupied by the owners but where the mortgage was buy to let and the occupation was in breach of the mortgage conditions. The proposals wouldn’t affect that situation.

I don’t know if there have been comparable cases involving residential properties, but we haven’t heard of any and neither have the MoJ. So the proposals appear to be to stop something that isn’t happening in response to a case that the proposals wouldn’t stop happening again anyway.

Still, the certainty would be a good thing for residential mortgagors. The consultation closes on 28 March 2010.

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Mortgage possession defeated by constructive trust

Published
by
Francis Davey
on 25/11/2009
in Housing law - All, Mortgage possession and Trusts and Estoppel
. 6 Comments

An opportunity to indulge in schadenfreude at the expense of a mortgage lender is offered by HSBC v Dyche [2009] EWHC 2954 (Ch) where a claim for possession by a mortgagee was dismissed because the actual occupant of the property was beneficiary under a constructive trust. The decision gives an example of the doctrine of the common intention constructive trust, and touches on the preconditions for overreaching to occur.

I’ll take a slightly different approach to the court and discuss each issue as it arises in the chronology.

the Constructive Trust

In 1976 Mr and Mrs Collelldeval (the C’s) moved into the property, which they held on trust for themselves as joint beneficial tenants. In 1988 Mr C was declared bankrupt (severing the joint beneficial tenancy). Some efforts were made to reclaim the property from the C’s by the trustee in bankruptcy and the Coventry Building Society (who held a charge over the property) but neither succeeded.

At this time (unsurprisingly) the C’s were unable to obtain a mortgage on the property to (for example) discharge the Coventry Building Society mortgage or otherwise deal with their indebtedness. Shortly before his discharge from bankruptcy Mr C appears to have come to the following agreement with those involved.

  • the property would be sold to the C’s’ daughter Amanda-Jane Dyche (the first defendant) and her husband (the D’s) for £25,000 (a price that did not represent the value of the house)
  • the proceeds of sale would be used to discharge the Coventry Building Society’s mortgage, leaving £18,000 to be paid to the trustee (and thus for the benefit of Mr C’s general creditors) and a small surplus for other purposes
  • the D’s would borrow £17,000 from Lloyds’ Bank secured by a mortgage on the property (and borrow a further £8,000 from a friend
  • the C’s would continue to live in the property and pay the D’s instalments to be used to reduce the mortgage indebtedness
  • when the Lloyds’ mortgage was discharged, the property would be re-conveyed to the C’s

The judge believed Mr C’s evidence that this was the deal because he (and his late wife) had continued to beneficially occupy the property. They had made payments to the D’s and some contemporaneous documentation also appeared to support his contention.

His analysis was that the arrangement created a common intention constructive trust with the D’s as trustees and the C’s as beneficiaries. Mr C has (of course) no interest in the property so could not convey it to the D’s but that, thought the judge, was really irrelevant because a constructive trust could be imposed from the moment of conveyance.

What kind of beneficial interest?

Mr C suffered more misfortune because in August 1994 Mrs C died. Mrs D argued that Mr C must have held the property as a beneficial tenant in common, as a result Mrs C’s interest would have fallen into her estate (and one presumes some of it might have come to Mrs D). The judge found no reason to accept that. The C’s had held the property as joint beneficial tenants until 1988 and would have continued to do so but for the bankruptcy.

Overreaching

The D’s divorced some 9 years later. In the divorce it was agreed that Mr D would sell his interest in the property to Mrs D for £5,000. At the same date, Mrs D obtained a mortgage from HSBC. In order to convince them that Mr C had no interest in the property she gave them a copy of an assured shorthold tenancy showing Mr C as a tenant and with a forged version (as the judge found) of his signature.

Mr C got wind of the transfer of the property into Mrs D’s sole name. She told him that she would transfer the property to him once the transfer to her had completed. The judge called this a deception (the transfer had already happened). The HSBC mortgage was used (amongst other things) for Mrs D’s own benefit, although some money was paid to discharge a debt to Lloyds (more on this later).

It was argued by HSBC that Mr C’s interest had been overreached by the sale and mortgage. I cannot see how such an argument can hope to have succeeded since (as any student knows) for a statutory overreaching to be effective the proceeds of sale (or mortgage) must be paid to 2 or more trustees. In this case they were not.

There was some discussion as to whether there were two transactions (transfer to Mrs D, then mortgage) or one (on the principle of Abbey National Building Society v Cann [1991] 1 AC 56, but of course either transaction taken individually or both taken together involved one and one only recipient of the purchase money.

This was not the first basis for the court’s decision. The judge held that in the transfer to Mrs D she was not a good faith purchaser (a requirement of statutory overreaching) since she was acting in breach of trust. As a result that transfer could not overreach Mr C’s interest.

The Result

The end result was that Mr C remained a beneficiary under a trust of the property. Since he was in actual occupation his interest overrode that of HSBC. He won, they lost. As the judge pointed out: they could have made more enquiries but they did not. A textbook example of the operation of overriding interests and one that should not have surprised the bank once the constructive trust point was found in Mr C’s favour.

What about the Lloyds’ mortgage? You remember there was an original loan secured on the property which Mr C was supposed to pay off. There was also another loan, some of which was paid off by the HSBC mortgage. What about subrogation I hear my readers ask? No-one was able to – or had thought to – produce sufficient evidence to make that argument a runner. The court was not able to tell even if the second loan had been secured on the property (in which case the subrogation argument might have been good) or not and it appears that the first loan was paid off before the HSBC mortgage.

An interesting case. I would be interested to know what readers think about the “not a purchaser in good faith” point.

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Stick, twist or fo(u)ld?

Published
by
J
on 14/11/2009
in FLW case note, Housing law - All, Mortgage possession and Possession
. 0 Comments

Abbey National v Miller [2006] EWCA Civ 1520; [2007] EWCA Civ 138

Miller-Foulds v Secretary of State for Constitutional Affairs [2008] EWHC 3443 (Ch); [2009] EWCA Civ 1132

You’d be forgiven for not having noticed any of this (long running) litigation over the last 3 years (if only because you need both Casetrack and Lawtel in order to find all four judgments, none of which seem to be on Bailii). On one view, this is just another mortgage possession case but – at least to me – there is quite a bit more in here.

Mrs Miller-Foulds was (and may still be for all I know) the freehold owner of a residential property in Middlesex. She purchased the same in 1986 with the benefit of a mortgage from Abbey National. By 1991 it appears that she had fallen into arrears on her mortgage. In November 1991, the bank obtained an SPO and – apparently – it recorded that the arrears were just over £7,000. I say “apparently” because Mrs Miller-Foulds disputed that such a sum was ever recorded as being the arrears. The original possession order had been lost/destroyed due to the passage of time. All that remained was a record-card of the hearing.

The bank applied – unsuccessfully – to lift the suspension on the possession order in 1995, 2002 and 2003. It sought to rely on the arrears figure allegedly stated on the 1991 order. Mrs Miller-Foulds denied that any such figure had been stated (so far as we can tell, it appears that both parties argued that the other was estopped from asserting/denying [delete as appropriate] the existence and level of the arrears).

In December 2005, HHJ Edwards sought to resolve this conundrum and declared that the arrears were c.£13,000. Mrs Miller-Foulds appealed to Langley J where she raised a new argument to the effect that the record card retained by the county court was insufficient to prove that a possession order had been made and that any arrears figure had been specified in that it did not meet the requirements of  s.12, County Courts Act 1984 and the SI made thereunder. These impose an obligation on the DJ to inter alia keep a minute of the order made.

Rix LJ ([2006] EWCA Civ 1520) granted permission to bring a second appeal on whether the record card complied with the requirements of s.12 and, if it did not, what effect that had on the ability of the bank to prove the 1991 order.

The Court of Appeal dismissed the appeal ([2007] EWCA Civ 138). The parties had proceeded for some 16 years on the basis that an order had been made and it was only in the appeal to Langley J that any argument to the contrary had been raised. It was far too late to raise such matters now.

Mrs Miller-Foulds then issued proceedings against the Secretary of State for Constitutional Affairs ([2008] EWHC 3443 (Ch)). She sought various declarations to the effect that the 1991 order could not be proved to exist or have any effect. The Secretary of State was said to be at fault for not ensuring that proper records were kept.

HHJ Pelling QC was not impressed by these proceedings. He was surprised (to put it mildly) that Abbey National were not named as a party to the proceedings, since that would have been the only way of ensuring that any declaration was binding on them. The Judge heard evidence about the practice in Brentford county court as to the practice in 1991 and concluded that there had been no breach of s.12, County Courts Act 1984. Even if that were wrong, there was no reason in law why the existence and terms of of an order could not be proved by secondary evidence if, as here, the original order had been lost.

Mrs Miller-Foulds sought permission to appeal to the Court of Appeal ([2009] EWCA Civ 1132). Permission was refused on the papers by Rimer LJ and an oral application was refused by Lloyd LJ. The proceedings were misconceived. At the least, the bank needed to have been named as a defendant and the failure to do so made it difficult to see the purpose of the proceedings. In any event, HHJ Pelling QC had been correct in his earlier judgment.

Phew. And thus ends this case. It isn’t uncommon in possession cases for orders to have been made many years ago and for the original order to have been lost / destroyed. Although the facts and history are odd, there is some useful material in HHJ Pelling QC’s judgment which may be of wider relevance in such cases.

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A charge for credit

Published
by
J
on 12/11/2009
in FLW case note and Mortgage possession
. 12 Comments

Southern Pacific Personal Loans Ltd v Walker [2009] EWCA Civ 1218 (although the neutral citation may change since there are two cases with number 1218)

We noted this case when it was but a county court decision. The Court of Appeal decision is now available and the decision of the county court has been overturned. This looks like it’ll have put an end to what was becoming a fairly common defence. On a purely personal note, having only just got my head around the argument (and started using it) the result is very frustrating.

The Consumer Credit Act 1974 isn’t, of course, necessarily a housing law statute. It so happens that a number of second charges (i.e. sub-prime mortgages) are loans which are regulated by the 1974 Act, but there is no necessary link between housing law and the 1974 Act.

By way of brief legislative background – the Consumer Credit Act 1974  regulates lending below a certain level (which was – I think – £25,000 at the time of the loan in this case). It requires certain prescribed information to be provided on the loan documentation and, if it is not provided or is inaccurate, then (for loans made prior to April 6, 2007), the loan cannot be enforced. One of the prescribed matters is “the amount of the credit.” Another is the interest rate and details of any charges for the credit.

Mr & Mrs Walker applied for a loan of £17,500 from SPPL. That loan was (a) regulated by the Consumer Credit Act 1974 and (b) secured by way of second charge on their home. The Walkers fell into arrears and SPPL sought possession. The DJ granted an SPO, which Mr & Mrs Walker appealed to the Circuit Judge.

The CJ allowed their appeal. They advanced – for the first time – an argument that the original loan was unenforceable because it did not specify the correct “amount of the credit.”

They argued that, whilst the loan had only been for £17,500, they had actually been advanced £18,375 (and had paid interest on the same), with the difference representing a fee paid to the broker. The 1974 Act required the amount of credit to be stated on the loan documentation. That had only referred to £17,500 and, therefore, the loan failed to comply with the requirements of the 1974 Act and was unenforceable. In addition, they successfully argued that the 1974 Act prohibited the charging of interest on any charges for credit.

SPPL appealed – successfully – to the Court of Appeal. The loan documentation had been correctly completed. The amount of the credit was £17,500. The additional £875 was a charge for the credit and not part of the credit itself. It had clearly been described as such on the loan documentation. It was correct for SPPL to exclude it from the credit figure.

There was no legal reason why interest could not be charged on a charge for credit. The 1974 Act did not prohibit the same and there was no reason for the court to invent a prohibition where the statute was silent.

The agreement correctly indicated the different component parts of the sum advanced to Mr & Mrs Walker and was therefore enforceable.

So – there we are – what at one time appeared to be a very attractive defence has just gone up in a puff of sub-prime smoke. A charge for credit should not be included in the amount of the credit specified on the loan documentation for a loan regulated by the 1974 Act but should be specified separately on the document.

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Subprime settlement

Published
by
NL
on 11/11/2009
in FLW case note, Housing law - All and Mortgage possession
. 0 Comments

Belmain Finance Limited v Peter James Bentley High Court (Chancery Division) Cardiff.

In a widely reported settlement (see here, here and here for example) this case has come to an end. Belmain Finance had lent £40,000 to Mr Bentley, secured against his home. Mr Bentley, due to having to care for his father and then the recession, was unable to meet the £550 per month payments and fell into arrears. (Mr bentley had already had to go part-time to care for his father at the time of taking the loan). Belmain brought possession proceedings.

Mr Bentley argued that the agreement was unfair under the Consumer Credit Act 1974, s.140A, apparently on grounds that there were shortcomings in the decision making procedure on granting the loan, including the under writing, affordability checks and valuation processes.

It appears that at the doors of the Court, Belmain made a settlement in the following terms:

- to re-write the secured loan account, cutting the repayments to £150 a month

- not to levy any further interest, any charges or legal costs “whatsoever.”

- possession claim was dismissed and Belmain cannot enforce repayment of the loan by this method for 5 years.

- After 5 years, enforcement by possession only if there are at least 12 months’ arrears on the new level of payments.

The Order in these terms was made by the High Court, approving the settlement.

For a subprime lender, that is a painful settlement. Blemain, putting a brave, not to say courageous, face on it said:

Mr Bentley fell behind with his loan payments. However, the matter was resolved before it went to court and we agreed to give him further time to repay what he owed. For the avoidance of doubt there has been no court decision on this case as a satisfactory arrangement was agreed.

This may be technically true, but from the perspective of a litigator, this is a last minute settlement made in utter dread of a precedent judgment.

Any further information welcome.

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Two for One

Published
by
NL
on 09/11/2009
in FLW case note, Housing law - All and Mortgage possession
. 0 Comments

Southern Pacific Mortgage Ltd v Heath [2009] EWCA Civ 1135

It has taken me a day or three to get to this one. Nobody else was up for doing it and frankly the detail of the Consumer Credit Act 1974, allegedly intended to make agreements clear for consumers, makes my head hurt.

In 2002, Ms Heath sought a remortgage of her house. The existing mortgage had about £19,000 outstanding. She arranged a remortgage for about £28,000 (after fees),a condition of which was that the lender had first charge, so that the existing mortgage would have to be discharged. This was arranged and in March 2002, the existing mortgage was paid off and Ms Heath paid £9,000.

In 2002, a credit agreement for more than £25,000 was not caught by the Consumer Credit Act requirement. It was common ground that the documents involved in the agreement and provided to Ms Heath did not satisfy the requirements of the Act, if applicable.

Ms Heath fell into arrears. Following two possession orders, suspended on terms, and facing a warrant for possession, Ms Heath argued that:

the agreement has to be treated for the purposes of the [Consumer Credit] Act [1974] as if it comprised two separate agreements, one relating to the amount which was used to repay the previous mortgage, and the other for the rest. If that were correct, the Act would have applied to each agreement, and, because it had not been complied with, no part of the agreement would be enforceable.

This defence did not succeed. On appeal to the Circuit Judge, the appeal was dismissed. This hearing was the second appeal.

Now, as simply and brutally as I can manage to set this out, Ms Heath argued that as regards the sum which was applied in redemption of the Halifax mortgage, the agreement was for restricted-use credit, because it was to refinance existing indebtedness, so it fell under section 11(1)(c) Consumer Credit Act 1974, while the remaining £9K for unrestricted-use credit under section 11(2).

Therefore the one transaction contained within it two different types, or categories, of agreement, in terms of the definitions in the Act. Because one part of the agreement fell within one category and the rest within another, section 18(1)(a) applied to the respective parts. Each part, therefore, has to be treated as a separate agreement under section 18(2).

Section 18 states:

(1) This section applies to an agreement (a ‘multiple agreement’) if its terms are such as—

(a) to place a part of it within one category of agreement mentioned in this Act, and another part of it within a different category of agreement so mentioned, or within a category of agreement not so mentioned, or

(b) to place it, or a part of it, within two or more categories of agreement so mentioned.

(2) Where a part of an agreement falls within subsection (1), that part shall be treated for the purposes of this Act as a separate agreement.

(3) Where an agreement falls within subsection (1)(b), it shall be treated as an agreement in each of the categories in question, and this Act shall apply to it accordingly.

(4) Where under subsection (2) a part of a multiple agreement is to be treated as a separate agreement, the multiple agreement shall (with any necessary modifications) be construed accordingly; and any sum payable under the multiple agreement, if not apportioned by the parties, shall for the purposes of proceedings in any court relating to the multiple agreement be apportioned by the court as may be requisite.

Thus the argument was that because the ‘two parts’ of the agreement feel under different (and not congruent) categories, s.18(1)(a) applied, not s.18(1)(b), which only applies if all the categories are congruent and compatible (e.g. unrestricted-use, running-account, and debtor-creditor). Each part, therefore, has to be treated as a separate agreement under section 18(2).

If, on the other hand, it had been an agreement involving different, but congruent, categories, it would fall under s.18(1)(b) and s.18(3) would apply such that all relevant requirements of the Act have to be complied with, whatever the categories may be, as to the whole agreement (or not, if it was oer £25K at the time). But this was not such an agreement. the categories of restricted use and unrestricted use were not congruent and were different, so s.18(1)(a) and s.18(2) were the relevant subsections.

As each part of the agreement was under £25K (£19K restricted use, £9K unrestricted use), the requirements of the Act applied and had not been complied with. Therefore the agreement(s) were not enforceable.

The respondent pointed out that just about any regulated agreement would fall under two or more categories, particularly congruent ones. This meant that 18(1) would apply to pretty much every regulated agreement and thus lack any purpose. The words ‘applies to an agreement [...] if‘ at the start of 18(1) indicates that only in some instances would the subsection apply, which was not the appellant’s argument. Instead the subsection should be read as both (a) and (b) being concerned with disparate categories of agreement, and the difference between them depends on whether the agreement, by its terms, is to be treated as being in separate parts or not. In this instance, the parts are rightly to be treated as being of one part, it being one agreement for provision of a single advance. Therefore, being over £25k, it was outside the requirements of the Act.

Precedent was found to be unclear and mostly obiter on this point. Academic discussion was divided in its view (for details, read the judgment paras 26-37).

Held, in Lloyd LJ’s sole judgment:

The practical difficulties if the appellant was correct would be large – for instance the specified amount of credit under the restricted use category – in discharge of the previous loan – would not be known until the last point of a redemption statement, if not later. The appellant’s point that argument from practical difficulty cannot prevail when the law is clear was taken, but was not sufficient. The respondent was right.

The starting point is that it is from the terms of the agreement that one must find out whether the agreement is one under which there are two or more parts, in different categories, or whether it, or part of it, falls into two or more categories. It is not correct to start from the proposition that more than one disparate category is concerned, and to conclude from this that the agreement must fall into two or more parts.

It is the agreement that is at issue in considering categories, not the credit provided under it. The term ‘categories’ in s.18(1)(a) means the same as in s.18(1)(b) as there is no reason to believe that the same word used in adjacent subsections would have different meanings. Read this way, subsection 18(1) should be taken:

as covering two possibilities, both being cases in which there are elements of an agreement which fall within two or more disparate categories, at least one of which is a category under the Act. Paragraph (a) deals with the case where the respective elements within the agreement can be seen as constituting separate parts of the agreement; paragraph (b) deals with the opposite case where they cannot be seen in that way. Moreover, this reading of section 18(1)(b) is supported also by the opening words “if the terms of the agreement”, because on the other reading the paragraph would apply to every agreement, not, as the opening words suggest, only to some.

In short, this was a single loan agreement, which could only be drawn down as a unit. The credit under the loan fell into two disparate categories, but as part of one agreement, so s.18(1)(b) applied. It was not an agreement whose terms put part in one category and part in another. The agreement could not be taken apart in that way.

Appeal dismissed. Ms Heath’s defence failed and the whole debt was enforceable.

And the next consumer credit mortgage case that comes our way will be written up by someone else…

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It is an ex-parrot

Published
by
NL
on 04/11/2009
in Assured Shorthold tenancy, FLW case note, Housing law - All, Mortgage possession and Possession
. 0 Comments

Scrowther v Watermill Properties [2009] EW Misc 6 (EWCC) Newcastle upon Tyne County Court

Continuing the Norwegian theme we appear to have adopted for such cases, here we have a example of an ex-sale and rent back agreement, void and gone to join the choir eternal. It is an interesting County Court case on collateral agreements to sale of property. And it is something of a synecdoche for the past decade.

Miss Scowther owned a property in Morpeth, purchased under the right to buy in January 2003. In September 2006, she contacted Watermill, who set themselves as out providing a form of sale and rent back scheme aimed at those who wanted to stay in the property for the next 10 years or more.

Watermill proposed an agreement under which the property was valued at £125,000. Miss Scowther would receive 75% of that, less the redeemed charges on the property. She would be given a six month assured shorthold tenancy at a monthly rent of £593. If she did not leave the property for 10 years or be made to leave due to breach of tenancy in that time, she would then receive a payment of a further 15% of the sale price, styled a ‘bonus’. At the trial there was some dispute over what Miss Scowther understood of this including the nature of the tenancy and the effect of breach of tenancy. the court found it had been explained to her by Watermill, but she had not had made clear to her the effect of being evicted for rent arrears within the 10 years.

The precise terms of this agreement were not set out in a single document. instead bits of it were strewn across a variety of sources:
oral discussions between the vendor and the purchaser’s representative, a client quotation form signed by the vendor, a letter sent to the vendor and a document entitled “Frequently Asked Questions” sent to the vendor during the course of negotiations.

The FAQ did not actually mention that the ‘bonus’ would be forfeit if she had rent arrears, or was evicted for this reason.

The sale progressed, although in January 2007, the main mortgagee, G E Money, obtained a possession order for mortgage arrears and Waternill themselves obtained a £2,033 charge for money loaned to Miss Scrowther. At the date of sale in February 2007, once all charges were redeemed, Miss Scowther received £7,413 and the 25% of the sale price, £31,250, was paid to Watermill. Miss Scrowther was given a 6 month AST for rent of £593 per month.

Miss S shortly accrued rent arrears and proceedings were begun by Waterill. In September 2007, a possession order was made, plus arrears of £1,781.25, mesne profits and costs. Possession was given in November 2007. After carrying out some £5K of works, the property was re-let by Watermill at £525 per month

Miss S brought proceedings for the repayment of the £31,250, aided pro bono by Matthew West.

Watermill argued that there was a valid collateral agreement to the sale in terms:

that the Claimant pays back to the Defendant from the sale the sum of £31,250 (25% purchase price), in consideration of which:

1. The Defendant enters into the contract for sale;

2. The Claimant is not required to give vacant possession which the Defendant would otherwise be entitled to under the contract for sale. She remains in her own home as desired and avoids the cost of relocation;

3. The Defendant enters into the tenancy agreement and assumes all responsibilities as landlord, including mortgage payments, buildings insurance payments and maintenance of the Property;

4. The sum of £18,750 (15% purchase price) to be repaid to the Claimant on vacation of the Property following the completion of 10 years of satisfactory tenancy, or where the Defendant terminates the tenancy without breach by the Claimant (“the Rentback Bonus”).

On this, the court rather tersely observed that the sale was a sale at market value. “No doubt it would have been possible to devise a scheme with the purchase price being 75% of market value but that was not this scheme”. Further, while it is true that Miss Scrowther was not required to give up possession her status of occupation changed significantly. She became a tenant under the assured shorthold tenancy with no security of tenure at an above market rent (see below).

However under the tests set out by Arden J in Hanoman v Southwark L B C [2008] AER(D) 146 [para 47] (our note here), there was a collateral contract in this case, “The terms of the collateral contract can be gleaned from the documents signed by Miss Scrowther, the letter sent by Mr Botsford on 3rd October 2006 and the FAQs and the fact that Miss Scrowther signed the authority and paid over the £31,250 to Watermill on completion”. There was no mistake on Miss Scrowther’s part and she had had the benefit of legal advice (although see below).

On Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, s.2 provides:

(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.
(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.
(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.
(4) Where a contract for the sale or other disposition of an interest in land satisfies the conditions of this section by reason only of the rectification of one or more documents in pursuance of an order of a court, the contract shall come into being, or be deemed to have come into being, at such time as may be specified in the order.

Miss S argued that if the collateral contract contradicted any of the terms of the contract for sale it would be invalidated by section 2., as per Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] LT & R 389. Although Hanoman allowed a valid collateral contract not avoided by s.2 LPA, even though it was not included or refered to in the contract for sale, Hanoman could be distinguished here. In Hanoman, the collateral contract did not require rectification of the lease, nor was it an agreement as to the terms on which the lease was granted. Here:

In reality Miss Scrowther is paying £31,250 for the privilege of selling the property at the contractual price of £125,000 with the possibility of recovering £18,750 after 10 years. In effect the purchase price is at best £112,500 (£125,000 – £12,500) and probably £93,750 (£125,000 – £31,250). These features are inconsistent with the price stated in the contract for the sale of the property and thus, he submits, the collateral contract is void under section 2.

In response, Watermill argued that

The agreements should as far as possible be construed so as to respect the autonomy of the parties. The collateral contract is not an agreement as to the terms of the contract for sale or as to the terms of the tenancy agreement – it runs parallel with them both. Second she submitted that the effect of section 2 if it were to apply would be to render the entire set of agreements void.

Held:
i)The payment of £31,250 is, in effect, a reduction of the price and inconsistent with the contract for sale. It does not run in parallel with it. The collateral contract is within section 2 and void.
ii) Section 2 affects only the collateral contract and not the contract for sale or the assured shorthold tenancy.

It was unnecessary to consider the Unfair Terms in Consumer Contracts Regulations, but if it had been, the term relating to the Rentback Bonus, limiting it to 15%, rather than the full 25% would have been unfair on the facts.

Watermill to pay the £31,250. But ordered that “Miss Scrowther is impecunious. There is accordingly a real risk that if the appeal succeeds that any sums paid to Miss Scrowther would not be repaid. In those circumstances I would provisionally also grant Watermill a stay of execution pending appeal.”

This is an interesting result and we’ll keep our ears open for an appeal.

It is also something of a synecdochical morality play for the Noughties, of course, or perhaps a series of Hogarth paintings in modern dress. Miss S setting debt against the equity in her Right to Buy property and then trading the title, following the blandishments of Watermill. Watermill setting up an agreement that gave them at the very worst, the property for 90% of the market price and a tenant at above market rent for 10 years. The court heard that the rent in the area was in a range of £400-£600 per month but council properties were usually at the lower part of the scale, the market rent more likely to be £500-£525 per month. At best, Watermill got the property for 75% of the market value and the cost of possession proceedings. Watermill did have the cheek to raise the £5K it had had to spend on renovating the property after getting possession as a painful expense that it should have been spared.

And then there was the arrangement of Miss S’s conyenacing solicitors on the sale. Watermill quite rightly said she could choose any she wanted, but if she chose one of their approved panel of conveyancers, Watermill would pay her solicitor’s fees. Conveyancing for free! how could Miss S resist? Sweeney Miller, a firm on Watermill’s panel, were instructed: “Some time around the end of October 2006 Watermill sent Sweeney Miller an e-mail introducing Miss Scrowther and giving brief details of the transaction. The e-mail included an authorisation form for Miss Scrowther to sign in relation to the £31,250.” As it happens, the Court notes that Sweeney Miller’s advice to Miss S, was inaccurate (stating that she would receive the full £31K back after 10 years) “and/or may have fallen short of what was required”. One might well have views about the propriety of a solicitor accepting payment of their fees by the buyer in the sale in which they are acting for the seller, apparently as a matter of routine.

It is to be noted that Watermill, also suitably emblematically, have fallen victim to the credit crunch and are no longer buying new properties, having bought some 360. One presumes that these are now worth less than 75% of the 2007 market value.

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But everybody did it…

Published
by
NL
on 09/10/2009
in FLW case note, Housing law - All and Mortgage possession
. 6 Comments

Serious Organised Crime Agency v Pelekanos [2009] EWHC 2307 (QB)

Just a quick note to observe that this case – well off our usual patch – makes clear that a significant misrepresentation on a mortgage application that would be likely to induce the lender to enter into the contact (and this can be inferred by the court and does not need evidence from the lender) means that the property, or other property into which it can be traced, is liable for confiscation via a civil recovery order under Part 5 of the Proceeds of Crime Act 2002. This is because it constitutes the proceeds of an unlawful act, to wit fraudulent misrepresentation. Just to be clear though, it is the proportion of the property (and any gains made on it) that was acquired by the unlawful act that is subject to the recovery order, so not the 5% deposit…

This must include all those exaggerations of earnings from the days of self-certification. As the Defendant in this case discovered, ‘that was what everybody did’ isn’t a viable defence:

Mr Pelakanos acknowledged in evidence that the filling out of the application forms was “quite creative”, and claimed that that was how things were at the time. He also acknowledged that he did not do anything “too wrong” in the forms. It may well be that practices were lax at this time and that mortgage applicants such as Mr Pelakanos thought that they could get away and did get away with false and exaggerated statements being made. However, a false statement is a false statement regardless of the prevalence of the practice of making such statements. If a person knows a statement he has made to be untrue then it is a fraudulent statement regardless of how many other applicants may be doing likewise. In the present case all the false statements of income made were substantially false and I am satisfied that in each case Mr Pelakanos knew this.

Now call me an old cynic, but this has got to potentially impact on a lot of people, both residental buyers and buy-to-let ’speculators’ who got a bit optimstically creative with the income section of the mortgage applications back in the days to the boom.

Thanks to Nikki for the pointer.

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Not so much guidance, more of an exhortation

Published
by
NL
on 29/09/2009
in Housing law - All and Mortgage possession
. 6 Comments

Back in our post on the 50th update to the CPR, we noted that there was a new requirement from 1 October 2009 for the Claimant in mortgage possession proceedings to notify occupiers of proceedings within 5 days of receiving notification of the date of hearing and, interestingly, to notify the local authority’s housing department under CPR 55. We wondered at the time what local authorities would actually do with these notifications.

And now Housing Minister John Healey has told them and us what they must do. Well, not so much must do as should do. Or perhaps ought to maybe think about doing, at least if they like the idea. Healey’s press release makes it sound good:

Mr Healey has also written today to all council leaders saying that when councils hear from lenders taking repossession action against local people this should prompt them to offer practical advice or support for residents struggling to keep their homes.

This could include directing them to free debt and legal advice, helping them apply for benefits such as Support for Mortgage Interest or, for the most vulnerable households, assessing them for the Mortgage Rescue Scheme.

But you will note that this is a letter from Mr Healey, not a code of guidance or anything that local authorities might actually be required to follow.

In short, we still don’t know what local authorities will do with the notifications and whether it makes any practical difference at all is entirely at the whim of the doubtless cash strapped housing departments and the authorities themselves.

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