In fact, in a case of arrears on a residential mortgage, CML members will not try to sell a property occupied by a residential borrower without first obtaining a court order for possession (unless the property is vacant or has been abandoned, or in cases of fraud, or with the informed consent of the borrower). Similarly, the lender will not appoint a receiver to sell a residential property without getting a court order beforehand.
CML members will not appoint a receiver as a means of avoiding the court process and the consumer protection measures upheld by the Financial Services Authority’s mortgage conduct of business rules, our industry guidance on arrears management and the pre-action protocol for owner-occupiers.
However, the commitment of CML members not to appoint a receiver without first obtaining a court order does not apply to commercial transactions, including buy-to-let mortgages, business loans secured against a residential property or bridging loans.
In buy-to-let cases, for example, appointing a receiver before obtaining a court order can be a quick and effective means of restoring stability in a case in which good tenants are paying their rent but the landlord is not using the money to pay his mortgage.
In cases like that, appointing a receiver allows the rent to be used for the proper purpose of repaying the mortgage and restores a working landlord-tenant relationship, ensuring that the property is managed properly and that any tenant concerns are addressed.
Since the court case was reported in the media, we have been discussing its implication with Ministry of Justice staff. We do not believe changes in legislation are necessary.
It is important at this time, however, for the mortgage industry to re-state the circumstances in which receivers may be appointed, and to reassure borrowers, politicians and the media that the power is not used in typical owner-occupier cases. We will be reporting recent events to our board in December and asking them to endorse the policy position outlined in this article.
