Mortgagee's power of possession

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The Mortgagee of a mortgaged property is entitled to take possession of it. This entitlement does not follow from a particular statutory right, but is a logical consequence of the way that mortgages work in English law. A mortgage is created by granting a lease to the mortgagee, or is deemed to be equivalent to so doing (s.87 Lpa (1925)). By definition, a lease creates a right of possession in favour of its owner.

When a mortgagee takes possession, this does not bring the mortgage to an end -- it is not a form of Foreclosure. The mortgagee in possession is required to work the land to the advantage of the mortgagor, and may be held to account if he fails to do so. In domestic mortgages, a mortgagee will therefore usually only seek possession as a prelude to sale (see mortgagees power of sale).

Although possession is a right, the mortgagee does not have a right to effect possession by force. Unless the property is standing empty, the mortgagee will need to apply to the court for a possession order. Such an order will only rarely be refused unless the property is a dwelling house. In this case, s.36 the Administration of Justice Act (1970) gives the court a power to postpone possession where there is a realistic possibility that the mortgagor will be able to meet the sums due under the loan. According to s.8 of the Administration of Justice Act (1973), the 'sums due' to not include any sums that arise by virtue of the mortgagor's failure to meet repayments of an installment mortgage. For example, it is usual for a mortgage agreement to contain a term to the effect that the whole balance becomes due if even one repayment is missed. The effect of s.8 is that the courts can grant relief to the mortgagor without requiring him to raise the entire amount of the loan.

Strictly speaking, a mortgagee does not have to seek possession -- with a court order or without -- to be able to exercise a power of sale. However, it is unlikely that a mortgagee will be able to sell the property while the mortgagor is still occupying it. Even if he does, he may be liable to the mortgagor for failing to realise a good price (CuckmereBrickVMutualFinance1971).

See also powers of mortgagee.

Land and Property Law