Lender’s Duties When Selling A Repossessed Property
The number of repossession claims has dropped drastically over recent years. According to Government statistics, at its peak in 1991 as many as 75,500 properties were repossessed and 0.77% of all recorded mortgages in arrears. Whilst this dropped to 33,900 (0.30% of all recorded mortgages) in 2012, and is set to continue on this trend, recent case law has given a timely reminder of the duties a mortgagee in possession has in relation to obtaining the best price reasonably obtainable for a property when selling on.
Lenders should note the case of Meah –v- GE Money Home Finance Limited  EWCH 20. Whilst the borrower’s claim was ultimately unsuccessful, the case encourages lenders to take care and adopt best practice when selling as mortgagee in possession. The key points to come out of the case were:
– The mortgagor is owed a specific duty that reasonable care will be taken to obtain the best price reasonably available at the time;
– Lenders should always obtain professional advice from surveyors both on value and method of sale; and
– Even if the asking price is not achieved, mortgagees in possession need to be able to robustly demonstrate that the property has been sufficiently exposed to the market.
The case concludes that if these factors are considered and followed, then any claim brought by a disgruntled borrower is likely to fail.
The Financial Ombudsman Service assesses complaints from borrowers claiming that repossessed property has been sold effectively at an undervalue. The Ombudsman will consider what steps were taken by the mortgagee in possession to get the best price it could at the time, for example, that:
- it obtained proper valuations of the property before marketing it;
- there was no unreasonable administrative delay on its part;
- it kept the consumer informed about what would happen – and responded to questions in a sensitive and timely way;
- it took reasonable steps to arrange for removal by the consumer of any personal items left at the property;
- it took reasonable steps to keep the property safe – and to avoid unnecessary deterioration of the property during the time it was in possession of it;
- the property was actively marketed through appropriate agents to obtain the best price;
- auction was only considered if more traditional approaches to marketing had failed to attract a buyer; and
- costs passed on to the borrower were for necessary work, were reasonable, and could be backed up with estimates and invoices.
Some of the sanctions dealt out to lenders when they have failed to comply with these steps, include:
- a refund of costs (or partial costs);
- a refund of interest;
- compensation for distress and inconvenience caused
It is important that lenders are aware of what is expected by the courts and the Financial Ombudsman Service, and indeed what the consequences of not following these steps are. The repossession of a property rarely results in the satisfaction of those concerned. Ensuring compliance with these simple steps will at least help to avoid further unnecessary cost and inconvenience for lenders.