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Land Law – Mortgage - Power of sale
Since it is typically simpler for a mortgagee to sell a property while it is vacant, this remedy is nearly generally employed in connection with the right to possession. The majority of mortgage deeds will now always include an express power of sale to the mortgagee. If no express clause is written, the mortgagee may nonetheless use this remedy in accordance with the statutory rights provided by LPA 1925. There are two tests in this. The power of sale must first "arise," which occurs when the following circumstances are satisfied:
The mortgage is made by a deed; there is no clause specifically excluding the power of sale; the legal date of redemption has passed, which will be indicated in the mortgage conditions but is typically six months from the date the mortgage was created.
After the power of sale has arisen, the mortgagee may enforce it if the following circumstances are satisfied: the mortgagor has received notice of any default and three months have passed without the debt being fully paid; some mortgage interest is overdue and has not been paid for two months; or there has been a violation of any other provision of the mortgage.
You will therefore see that the power of sale arises when only one of these requirements is satisfied. Take a look at Practice example 8.7 for additional details on this clause.
Example
It had been two years since David bought his land. He recently missed three payments on his Tyne and Wear Building Society mortgage. They write him a letter requesting prompt payment of all outstanding balances. He has only paid back a portion of the outstanding debt after three months. Is the mortgagee now able to use its sale power?
In other words, unless otherwise stated, we can presume that the mortgage is made by deed and does not preclude the power of sale. Based on the facts, we can see that the power of sale has arisen as the legal date of redemption has passed. Three months have gone after David was notified that he had defaulted, and he has not
Important word: lawful redemption date
This phrase indicates a potential repayment date for the mortgagor, not that they are required to do so.
paid out the whole amount, allowing the mortgagee to lawfully sell David's house and exercising the power of sale.
Although the mortgagee would often apply for the right to possession as explained earlier in the chapter, it is important to note that they are not required to get a court order for sale in this manner.
Due to growing concerns about the mortgagee's potential for abuse of power, mortgagees in this situation are subject to a number of duties that have been established by case law. These duties include the need to act in good faith, which entails making an honest sale to a stranger. They are not allowed to sell the property to nominees in trust or to themselves in order to profit from the genuine market worth. To make sure their loan is settled, a mortgagee cannot merely sell the property for any price they like or for less than what it is worth. It is their responsibility to ascertain the property's actual market value. For an example of this, see Practice example 8.8.
timing and sales channel. The mortgagee still has an obligation to secure a fair price for the land, but it can typically use its discretion to decide when to sell the property and is not required to wait for the market to improve. In addition, they can decide how to sell—through a public auction or on the open market—but they have to make sure that any potential buyers are given access to all relevant information about the property.
The mortgagor may request a court order to set aside the sale or to make the mortgagee reimburse any difference between the sale price and the amount that could have been paid for the land if the mortgagee neglects to fulfill these responsibilities.
Exercise
A power of sale has emerged and is currently exercisable as a result of the events in this example
Tom notifies the bank that the property is approved for a rear extension, loft conversion, and two-story addition, all of which would raise the land's worth to
about £130,000. The mortgagee chooses to sell the house at auction, mentioning just the one-story back addition. The house sells for £120,000. Did the mortgagee have an obligation to make sure the right details were released in conjunction with the sale?
Indeed. This is based on the facts of Cuckmere Brick Co. v. Mutual Finance (1971), where the site sold for £31,000 less than its true value because it was not fully disclosed that it had planning authority to be developed into 100 apartments. Mutual Finance had disregarded its obligations to conduct the sale with reasonable care, operate in good faith, and secure a reasonable price for the land. The mortgagee was obligated to reimburse the mortgagor for the deficiency.
It is worth noting that there is no need for the mortgagee to obtain a court order for sale in this way, but they would usually apply for the right to possession as detailed earlier in the chapter.
Concerns around abuse of power of the mortgagee have arisen over the years and so certain obligations are placed on mortgagees in this position, which have been developed by case law. These obligations are:
duty to act in good faith, which means they must conduct an honest sale to an unconnected person. They cannot sell the property to themselves or to nominees in trust for themselves obtaining the true market value. A mortgagee cannot simply sell the property at any price it wants to, or at an undervalue just to ensure their debt is paid off. They have a duty to obtain the true market value of the property. See Practice example 8.8 for an illustration of this.
timing and mode of sale. The mortgagee is generally able to exercise its discretion as to when it sells the property and does not have to wait until market conditions improve, but it still maintains that duty to obtain a proper price for the land. They can also choose how to sell, whether by public auction or by selling on the open market but must ensure the full information about the property is made available to prospective purchasers.
If a mortgagee fails to comply with these obligations then the mortgagor could seek a court order for the sale to be set aside or that the mortgagee pay for any shortfall in the sale price and the price that could have been obtained for the land.
7, a power of sale has arisen and is now exercisable. Tom informs the bank that the property has planning permission granted for a two-storey extension, loft conversion and rear extension, all of which would increase the value of the land to
around £130,000. The mortgagee decides to sell the property at auction but only the single storey rear extension is mentioned and the property sells for £120,000. Did the mortgagee have a duty to ensure the correct information was published in connection with the sale?
Yes. This is based on the facts of Cuckmere Brick Co. v Mutual Finance (1971) where failure to fully publicise that the land had planning permission to build 100 flats meant the land sold for £31,000 less than it was valued at. Mutual Finance had breached its duty to act in good faith, to take reasonable care in conducting the sale and to obtain a fair and proper price for the land. The mortgagee was required to compensate the mortgagor for the shortfall.
It is worth noting that there is no need for the mortgagee to obtain a court order for sale in this way, but they would usually apply for the right to possession.
Concerns around abuse of power of the mortgagee have arisen over the years and so certain obligations are placed on mortgagees in this position, which have been developed by case law. These obligations are:
duty to act in good faith, which means they must conduct an honest sale to an unconnected person. They cannot sell the property to themselves or to nominees in trust for themselves obtaining the true market value. A mortgagee cannot simply sell the property at any price it wants to, or at an undervalue just to ensure their debt is paid off. They have a duty to obtain the true market value of the property. See Practice example 8.8 for an illustration of this.
timing and mode of sale. The mortgagee is generally able to exercise its discretion as to when it sells the property and does not have to wait until market conditions improve, but it still maintains that duty to obtain a proper price for the land. They can also choose how to sell, whether by public auction or by selling on the open market but must ensure the full information about the property is made available to prospective purchasers.
If a mortgagee fails to comply with these obligations then the mortgagor could seek a court order for the sale to be set aside or that the mortgagee pay for any shortfall in the sale price and the price that could have been obtained for the land a power of sale has arisen and is now exercisable. David informs the bank that the property has planning permission granted for a two-storey extension, loft conversion and rear extension, all of which would increase the value of the land to
around £130,000. The mortgagee decides to sell the property at auction but only the single storey rear extension is mentioned and the property sells for £120,000. Did the mortgagee have a duty to ensure the correct information was published in connection with the sale?
Yes. This is based on the facts of Cuckmere Brick Co. v Mutual Finance (1971) where failure to fully publicise that the land had planning permission to build 100 flats meant the land sold for £31,000 less than it was valued at. Mutual Finance had breached its duty to act in good faith, to take reasonable care in conducting the sale and to obtain a fair and proper price for the land. The mortgagee was required to compensate the mortgagor for the It is worth noting that there is no need for the mortgagee to obtain a court order for sale in this way, but they would usually apply for the right to possession as detailed earlier in the chapter.
Concerns around abuse of power of the mortgagee have arisen over the years and so certain obligations are placed on mortgagees in this position, which have been developed by case law. These obligations are:
duty to act in good faith, which means they must conduct an honest sale to an unconnected person. They cannot sell the property to themselves or to nominees in trust for themselves obtaining the true market value. A mortgagee cannot simply sell the property at any price it wants to, or at an undervalue just to ensure their debt is paid off. They have a duty to obtain the true market value of the property.
timing and mode of sale. The mortgagee is generally able to exercise its discretion as to when it sells the property and does not have to wait until market conditions improve, but it still maintains that duty to obtain a proper price for the land. They can also choose how to sell, whether by public auction or by selling on the open market but must ensure the full information about the property is made available to prospective purchasers.
If a mortgagee fails to comply with these obligations then the mortgagor could seek a court order for the sale to be set aside or that the mortgagee pay for any shortfall in the sale price and the price that could have been obtained for the land.
a power of sale has arisen and is now exercisable. David informs the bank that the property has planning permission granted for a two-storey extension, loft conversion and rear extension, all of which would increase the value of the land to
around £130,000. The mortgagee decides to sell the property at auction but only the single storey rear extension is mentioned and the property sells for £120,000. Did the mortgagee have a duty to ensure the correct information was published in connection with the sale?
Yes. This is based on the facts of Cuckmere Brick Co. v Mutual Finance (1971) where failure to fully publicise that the land had planning permission to build 100 flats meant the land sold for £31,000 less than it was valued at. Mutual Finance had breached its duty to act in good faith, to take reasonable care in conducting the sale and to obtain a fair and proper price for the land. The mortgagee was required to compensate the mortgagor for the shortfall.
Since it is typically simpler for a mortgagee to sell a property while it is vacant, this remedy is nearly generally employed in connection with the right to possession. The majority of mortgage deeds will now always include an express power of sale to the mortgagee. If no express clause is written, the mortgagee may nonetheless use this remedy in accordance with the statutory rights provided by LPA 1925. There are two tests in this. The power of sale must first "arise," which occurs when the following circumstances are satisfied:
The mortgage is made by a deed; there is no clause specifically excluding the power of sale; the legal date of redemption has passed, which will be indicated in the mortgage conditions but is typically six months from the date the mortgage was created.
After the power of sale has arisen, the mortgagee may enforce it if the following circumstances are satisfied: the mortgagor has received notice of any default and three months have passed without the debt being fully paid; some mortgage interest is overdue and has not been paid for two months; or there has been a violation of any other provision of the mortgage.
You will therefore see that the power of sale arises when only one of these requirements is satisfied. Take a look at Practice example 8.7 for additional details on this clause.
Example
It had been two years since David bought his land. He recently missed three payments on his Tyne and Wear Building Society mortgage. They write him a letter requesting prompt payment of all outstanding balances. He has only paid back a portion of the outstanding debt after three months. Is the mortgagee now able to use its sale power?
In other words, unless otherwise stated, we can presume that the mortgage is made by deed and does not preclude the power of sale. Based on the facts, we can see that the power of sale has arisen as the legal date of redemption has passed. Three months have gone after David was notified that he had defaulted, and he has not
Important word: lawful redemption date
This phrase indicates a potential repayment date for the mortgagor, not that they are required to do so.
paid out the whole amount, allowing the mortgagee to lawfully sell David's house and exercising the power of sale.
Although the mortgagee would often apply for the right to possession as explained earlier in the chapter, it is important to note that they are not required to get a court order for sale in this manner.
Due to growing concerns about the mortgagee's potential for abuse of power, mortgagees in this situation are subject to a number of duties that have been established by case law. These duties include the need to act in good faith, which entails making an honest sale to a stranger. They are not allowed to sell the property to nominees in trust or to themselves in order to profit from the genuine market worth. To make sure their loan is settled, a mortgagee cannot merely sell the property for any price they like or for less than what it is worth. It is their responsibility to ascertain the property's actual market value. For an example of this, see Practice example 8.8.
timing and sales channel. The mortgagee still has an obligation to secure a fair price for the land, but it can typically use its discretion to decide when to sell the property and is not required to wait for the market to improve. In addition, they can decide how to sell—through a public auction or on the open market—but they have to make sure that any potential buyers are given access to all relevant information about the property.
The mortgagor may request a court order to set aside the sale or to make the mortgagee reimburse any difference between the sale price and the amount that could have been paid for the land if the mortgagee neglects to fulfill these responsibilities.
Exercise
A power of sale has emerged and is currently exercisable as a result of the events in this example
Tom notifies the bank that the property is approved for a rear extension, loft conversion, and two-story addition, all of which would raise the land's worth to
about £130,000. The mortgagee chooses to sell the house at auction, mentioning just the one-story back addition. The house sells for £120,000. Did the mortgagee have an obligation to make sure the right details were released in conjunction with the sale?
Indeed. This is based on the facts of Cuckmere Brick Co. v. Mutual Finance (1971), where the site sold for £31,000 less than its true value because it was not fully disclosed that it had planning authority to be developed into 100 apartments. Mutual Finance had disregarded its obligations to conduct the sale with reasonable care, operate in good faith, and secure a reasonable price for the land. The mortgagee was obligated to reimburse the mortgagor for the deficiency.
It is worth noting that there is no need for the mortgagee to obtain a court order for sale in this way, but they would usually apply for the right to possession as detailed earlier in the chapter.
Concerns around abuse of power of the mortgagee have arisen over the years and so certain obligations are placed on mortgagees in this position, which have been developed by case law. These obligations are:
duty to act in good faith, which means they must conduct an honest sale to an unconnected person. They cannot sell the property to themselves or to nominees in trust for themselves obtaining the true market value. A mortgagee cannot simply sell the property at any price it wants to, or at an undervalue just to ensure their debt is paid off. They have a duty to obtain the true market value of the property. See Practice example 8.8 for an illustration of this.
timing and mode of sale. The mortgagee is generally able to exercise its discretion as to when it sells the property and does not have to wait until market conditions improve, but it still maintains that duty to obtain a proper price for the land. They can also choose how to sell, whether by public auction or by selling on the open market but must ensure the full information about the property is made available to prospective purchasers.
If a mortgagee fails to comply with these obligations then the mortgagor could seek a court order for the sale to be set aside or that the mortgagee pay for any shortfall in the sale price and the price that could have been obtained for the land.
7, a power of sale has arisen and is now exercisable. Tom informs the bank that the property has planning permission granted for a two-storey extension, loft conversion and rear extension, all of which would increase the value of the land to
around £130,000. The mortgagee decides to sell the property at auction but only the single storey rear extension is mentioned and the property sells for £120,000. Did the mortgagee have a duty to ensure the correct information was published in connection with the sale?
Yes. This is based on the facts of Cuckmere Brick Co. v Mutual Finance (1971) where failure to fully publicise that the land had planning permission to build 100 flats meant the land sold for £31,000 less than it was valued at. Mutual Finance had breached its duty to act in good faith, to take reasonable care in conducting the sale and to obtain a fair and proper price for the land. The mortgagee was required to compensate the mortgagor for the shortfall.
It is worth noting that there is no need for the mortgagee to obtain a court order for sale in this way, but they would usually apply for the right to possession.
Concerns around abuse of power of the mortgagee have arisen over the years and so certain obligations are placed on mortgagees in this position, which have been developed by case law. These obligations are:
duty to act in good faith, which means they must conduct an honest sale to an unconnected person. They cannot sell the property to themselves or to nominees in trust for themselves obtaining the true market value. A mortgagee cannot simply sell the property at any price it wants to, or at an undervalue just to ensure their debt is paid off. They have a duty to obtain the true market value of the property. See Practice example 8.8 for an illustration of this.
timing and mode of sale. The mortgagee is generally able to exercise its discretion as to when it sells the property and does not have to wait until market conditions improve, but it still maintains that duty to obtain a proper price for the land. They can also choose how to sell, whether by public auction or by selling on the open market but must ensure the full information about the property is made available to prospective purchasers.
If a mortgagee fails to comply with these obligations then the mortgagor could seek a court order for the sale to be set aside or that the mortgagee pay for any shortfall in the sale price and the price that could have been obtained for the land a power of sale has arisen and is now exercisable. David informs the bank that the property has planning permission granted for a two-storey extension, loft conversion and rear extension, all of which would increase the value of the land to
around £130,000. The mortgagee decides to sell the property at auction but only the single storey rear extension is mentioned and the property sells for £120,000. Did the mortgagee have a duty to ensure the correct information was published in connection with the sale?
Yes. This is based on the facts of Cuckmere Brick Co. v Mutual Finance (1971) where failure to fully publicise that the land had planning permission to build 100 flats meant the land sold for £31,000 less than it was valued at. Mutual Finance had breached its duty to act in good faith, to take reasonable care in conducting the sale and to obtain a fair and proper price for the land. The mortgagee was required to compensate the mortgagor for the It is worth noting that there is no need for the mortgagee to obtain a court order for sale in this way, but they would usually apply for the right to possession as detailed earlier in the chapter.
Concerns around abuse of power of the mortgagee have arisen over the years and so certain obligations are placed on mortgagees in this position, which have been developed by case law. These obligations are:
duty to act in good faith, which means they must conduct an honest sale to an unconnected person. They cannot sell the property to themselves or to nominees in trust for themselves obtaining the true market value. A mortgagee cannot simply sell the property at any price it wants to, or at an undervalue just to ensure their debt is paid off. They have a duty to obtain the true market value of the property.
timing and mode of sale. The mortgagee is generally able to exercise its discretion as to when it sells the property and does not have to wait until market conditions improve, but it still maintains that duty to obtain a proper price for the land. They can also choose how to sell, whether by public auction or by selling on the open market but must ensure the full information about the property is made available to prospective purchasers.
If a mortgagee fails to comply with these obligations then the mortgagor could seek a court order for the sale to be set aside or that the mortgagee pay for any shortfall in the sale price and the price that could have been obtained for the land.
a power of sale has arisen and is now exercisable. David informs the bank that the property has planning permission granted for a two-storey extension, loft conversion and rear extension, all of which would increase the value of the land to
around £130,000. The mortgagee decides to sell the property at auction but only the single storey rear extension is mentioned and the property sells for £120,000. Did the mortgagee have a duty to ensure the correct information was published in connection with the sale?
Yes. This is based on the facts of Cuckmere Brick Co. v Mutual Finance (1971) where failure to fully publicise that the land had planning permission to build 100 flats meant the land sold for £31,000 less than it was valued at. Mutual Finance had breached its duty to act in good faith, to take reasonable care in conducting the sale and to obtain a fair and proper price for the land. The mortgagee was required to compensate the mortgagor for the shortfall.
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