Andrew Richardson: Housing loans – a further obstacle for banks in exercising power of sale
Banks should be alert to the obstacles posed by the Land and Conveyancing Law Reform Act 2009 in exercising their power of sale under housing loan mortgages, writes Andrew Richardson.
As most mortgagee and receiver sales over the past decade related to mortgages executed before the economic downturn of 2008, the provisions of Sections 96 and 100 of the 2009 Act in relation to housing loans are only now becoming more relevant given their application is limited to mortgages executed on or after 1 December 2009.
Section 100(1) of the 2009 Act obliges a mortgagee to serve 28 days’ notice on a defaulting mortgagor prior to sale of a mortgaged property.
Under Section 100(2) of the 2009 Act, a mortgagee’s power of sale shall not be exercisable in the absence of a court order unless the mortgagor has consented in writing not more than 7 days prior to the sale. Under Section 100 (3), such a court order can only be sought after the expiration of the 28 days’ notice.
Under Section 96(3) of the 2009 Act, the provisions of Sections 100(2) and 100(3) apply to “any housing loan mortgage notwithstanding any stipulation to the contrary”. This is important as it means that it is not possible to contract out of the requirements for either a court order or consent prior to the exercise of a power of sale under a housing loan mortgage.
Therefore, on registration it is necessary to provide the PRA with evidence of a court order or relevant consent where a property has been sold by a mortgagee under a housing loan mortgage.
The PRA has clarified that a court order or relevant consent is not required if evidence is provided that the mortgage is not a housing loan mortgage and that the provisions of Sections 100(2) and 100(3) have been contracted out of in the mortgage.
Evidence that a mortgage is not a housing loan mortgage can be one of the following:
- The mortgagor is not a natural person.
- The mortgagor is a natural person but a solicitor’s certificate is provided that the mortgage is not a ‘housing loan mortgage’ as defined by the 2009 Act and the mortgagor is not a ‘consumer’ within the meaning of section 2(1) of the Consumer Credit Act 1995.
Such a certificate should only be provided by a solicitor acting for the bank and only where they are familiar with the circumstances of which the loan was granted.
Banks intending to enforce their power of sale should ensure that the requirements of Sections 100(2) and 100(3) of the 2009 Act have been satisfied or that the exercise of their power of sale is exempt from those provisions.