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Mortgage rescue is more complex than it looks, say Mike Gaskell and Laurence Target of Trowers & Hamlins
Although the concept of mortgage rescue is straightforward, it poses many legal and practical challenges. The best approach to be adopted depends on the circumstances of the case.
A lender without a court order for sale is unlikely to permit an owner to sell his property, unless the outstanding mortgage can be redeemed from the sale proceeds. A lender normally has the power to prevent a sale in these circumstances.
However, an owner selling the property himself can often achieve a higher price than a lender selling at auction. While a lender may be willing to allow the owner to sell the property, the owner will generally have to reimburse the mortgagee for all outstanding sums.
A lender exercising a court order for sale owes a duty to the owner to take reasonable care to obtain the best price. The courts take a dim view of this duty being compromised and will be suspicious of any sale by the lender where it is for less than the independent valuation, even where the sale takes place with the owner’s apparent consent.
Any agreement by an owner in these circumstances to release the lender from this duty would be unlikely to be upheld by the court if challenged.
Equally, a court would be unlikely to uphold, if challenged, a lender’s attempt to fix a price for the sale of the property to a social landlord where the disposal was financed by a loan that the social landlord could support solely by rental payments, which were themselves within the financial capabilities of the (previous) owner. Consequently, any loan to a social landlord to finance mortgage rescue would have to be on very soft terms.
It is possible that a social landlord could justify paying more than it normally would to a lender for the purchase with vacant possession, where a lender was exercising its power of sale and the sale was conditional on the (former) owner taking up a tenancy in that property, provided the tenant acknowledged that this would be his only interest in that property.
This would achieve a higher return for the lender, reducing any balance payable by the (former) owner and ensuring that he would not be made homeless. A social landlord using this method should get involved at the earliest opportunity.
An alternative is for the social landlord to buy the loan from the lender at a discount, leaving the owner in possession. The landlord may be able to accept lower interest payments and income support may be available to help owners meet these payments.
Although there are challenges to each method of mortgage rescue, with intelligent application of the legal and practical solutions, none
of these are insurmountable.
mgaskell@trowers.com or ltarget@trowers.com
