A mortgagee’s power of sale arises as soon as a mortgage deed is executed however a mortgagee cannot sell or take possession of a property unless there is a default under the terms of the mortgage, most commonly non-payment of monthly repayments. Once a mortgagee either peaceably takes physical possession of the property or issues possession proceedings and the property has been repossessed, the subsequent purchase will be one of a repossessed property and the Seller will be a Mortgagee in Possession (MP).
Dealing with a MP is different from dealing with a ‘normal Seller’ (whereby the registered proprietor sells their own property and any mortgage registered against the property is discharged upon redemption of the mortgage at completion). The main considerations to bear in mind when dealing with a MP are summarised below:
1. If the mortgagee exercises its power of sale, it owes the mortgagor a duty to take reasonable care to obtain the best price reasonably available at that time. The best price reasonably available is usually the market value of the property at the date of sale. Mortgagees will often advertise that they have received an offer and ask for offers in excess of that price to be made by a certain date to mitigate the risk of the mortgagor claiming that the mortgagee has acted in breach of its duty to obtain the best price reasonably obtainable. A mortgagee should follow up any possible higher offers and therefore until exchange of contracts, the point at which both parties are legally committed to the transaction, the mortgagee can consider other offers from third parties.
2. The MP does not have any personal knowledge of the property and therefore will not provide the following information which would be provided in the course of a standard transaction:
(a) Fittings and Contents Form
This form is usually completed by the Seller and clearly details fittings and contents which are included within the sale (if any), and the Seller may also offer to leave certain items subject to the Buyer paying an amount as requested by the Seller. A MP is not able to provide this information and will not be prepared to answer any questions in relation to the property. Any items remaining at the property do not belong to the MP and there is a strong possibility that these items will belong to previous owners or occupiers, including the mortgagor. The MP is entitled to remove chattels from the property prior to completion but is under no obligation to do so. There is a real risk that you may purchase a property subject to any items remaining at the property, in which case you are required to make these items available for the owner and need to be careful disposing of any fittings or contents.
(b) Property Information Form
Again, the Seller would ordinarily complete this form which is designed to provide you with general information about the property you are purchasing such as any disputes with neighbours, confirmation of utility providers and any works carried out at the property. A MP will not provide this information and will sell with either limited or no title guarantee, meaning that you must take extra care to satisfy yourself with regard to the physical condition of the property and it is particularly recommended that you obtain a full detailed survey report on the condition of the property. You will have no recourse against the MP should any defects arise post-completion.
3. When dealing with a MP, it is usual to see a Special Condition inserted into the Contract which authorises the MP or its agent to access the property for up to 12 months following completion in the event that the MP requires a retrospective valuation of the property for litigation purposes. It is also common for the MP to enter a restriction on the title for a period of 4 months following completion, limiting your ability to dispose of the property within this time frame.
If you have a repossessed property portfolio or are in the process of purchasing a repossessed property at auction, please contact our Commercial Property department, who have experience of dealing with MP’s and will be able to guide you through the process without any stress or hassle.
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