LPA Receiver vs Mortgagee in Possession
A mortgagee in possession is a lender that has physically taken over management of the mortgaged property — this triggers strict duties to account, manage with due diligence, and obtain the best price on sale. An LPA receiver appointed under LPA 1925 s.109 is the agent of the mortgagor (not the lender), so the lender avoids the onerous mortgagee in possession duties — this is why lenders almost always prefer a receiver. The power of sale arises under LPA 1925 s.101 (mortgage by deed; legal date for redemption passed) and is exercisable once a s.103 trigger is met: 3 months' notice unpaid; 2 months' arrears; any breach of mortgage terms. For dwelling houses, AJA 1970 s.36 requires a court order — the court can adjourn or suspend proceedings if the mortgagor has a realistic prospect of paying within a reasonable period.
Duties of a Mortgagee in Possession
Duty to account: the mortgagee must account for all income received or that could with due diligence have been received — White v City of London Brewery Co (1889); failure to collect rent from sitting tenants is a breach. Duty of management: must manage with the due diligence of a reasonable person managing the property for their own benefit — keep insured; carry out necessary repairs; collect rents promptly. No right to profit: all surplus above debt and costs must be paid to the mortgagor. Cuckmere duty on sale: when exercising the power of sale, must take reasonable steps to obtain the best price reasonably obtainable at the time — Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971]; owed to the mortgagor and subsequent encumbrancers; breach gives a claim for damages representing the shortfall between the price obtained and the price that could reasonably have been obtained.
Tenant Protection on Mortgage Repossession
Unauthorised tenancies (created without lender consent in breach of mortgage terms) are not binding on the lender — it takes free and can obtain possession against the tenant as well as the mortgagor. Under the Mortgage Repossessions (Protection of Tenants etc) Act 2010, even unauthorised residential occupiers can apply to the court to postpone a possession order by up to 2 months. Courts require mortgage possession claimants to serve notice on any residential occupiers (Practice Direction 55A). Authorised tenancies (consented to by the lender) bind the mortgagee — the lender must serve notice and obtain a separate possession order against the tenant. Practical protection: always obtain written lender consent before creating a BTL tenancy; retain the written consent as evidence if possession proceedings arise.
Landlord Strategies When Facing Mortgage Default
Engage early: most BTL lenders prefer restructuring to repossession — contact the arrears team as soon as arrears arise; the FCA MCOB rules require regulated lenders to consider the borrower's circumstances. AJA 1970 s.36 adjournment: apply to the court to adjourn or suspend possession proceedings on the basis of a credible repayment plan. Voluntary sale: generally achieves a better price than a lender sale; lenders will often stay enforcement while a voluntary sale proceeds. Consent order: negotiate suspension of possession on agreed payment terms. Protect tenants: ensure tenancies are in writing and authorised; inform tenants early so they can seek independent advice. Mortgage rescue: some councils and housing associations offer equity buy-out or sale-and-lease-back schemes for landlords in distress.