How a Lender Becomes Mortgagee in Possession
A mortgagee has an immediate common law right to take possession from the moment the mortgage is created (Four-Maids Ltd v Dudley Marshall [1957]). In practice, lenders take possession only after significant arrears, material breach of mortgage conditions (no consent to let; insurance failure), or borrower insolvency. AJA 1970 s.36 gives courts a discretion to adjourn or suspend possession proceedings for residential mortgages where the borrower is likely to pay within a reasonable period. MCOB 13 (FCA Mortgage Conduct of Business) requires regulated lenders to treat borrowers in arrears fairly and to consider alternatives to possession. Where lender consent to let was not obtained, the lender may take possession on breach of mortgage conditions alone. An LPA receiver (appointed under LPA 1925 s.101) is often preferred to direct possession — the receiver acts as the borrower's agent, avoiding the mortgagee's personal liability for negligent management.
Tenant Protections — MRP(PT)A 2010
The Mortgage Repossessions (Protection of Tenants etc) Act 2010 requires the lender to give residential tenants at least 2 months' notice before enforcing a possession order (s.2). The court can adjourn possession proceedings or suspend a possession order for up to 2 months on the tenant's application. These protections apply to both authorised and unauthorised tenancies. Under LPA 1925 s.99, the mortgagor has a statutory power to grant leases — most modern BTL mortgage conditions exclude or restrict this power; unauthorised tenancies do not bind the lender. Ground 2 of HA 1988 Sch.2 is a mandatory possession ground for lenders where the mortgage predated the tenancy and notice was given at the outset; without the Ground 2 notice, the court retains a discretion only.
Mortgagee in Possession Duties
A lender as MIP must take reasonable care to obtain the best price reasonably obtainable on sale (Cuckmere Brick Co v Mutual Finance [1971] Ch 949 CA); manage the property reasonably (collect rents; maintain; comply with statutory obligations — EPC; fire safety; HMO licensing); account to the mortgagor for all rents and proceeds less costs. A MIP is personally liable for negligent management — unlike an LPA receiver (who acts as the borrower's agent); this is the primary reason lenders prefer receivership. In borrower insolvency, fixed charge security continues — secured creditors are not stayed by the insolvency moratorium.
Landlord in Default — Practical Steps
Contact the lender at the first sign of arrears — MCOB 13 requires regulated lenders to consider alternatives to possession (repayment plan; moratorium; consent sale). Inform tenants proactively — they have MRP(PT)A 2010 rights once a possession order is made; early notice allows tenants to plan. Do not collect rents while failing to pay the mortgage — where an LPA receiver is appointed, the receiver collects rents directly; diverting rents can constitute fraud in extreme cases. Do not grant new tenancies without lender consent — unauthorised tenancies do not bind the lender and expose the landlord to misrepresentation liability. Voluntary surrender may be the best outcome where arrears cannot be remedied and there is significant negative equity.