686 Property Law

In practice, of course, there is no reason why a mortgagee acting in good faith would want to take possession except for the purposes of protecting or enforcing the security. An institutional lender is unlikely to want to take possession for its own purposes, and fear of adverse publicity would probably deter it even if it did, at least if it was a lender operating in the competitive house-purchase home-loan sector.

There are also potential legal problems. If the premises are residential, there is a danger of committing a criminal offence under section 6 of the Criminal Law Act 1967 if the mortgagee takes possession of occupied premises without a court order (section 6 makes it an offence to use or threaten force to secure entry to residential premises if at the time there is someone present on the premises who objects to the entry and the entrant knows this). And, if the mortgagee decides to apply for a court order of possession, the court has jurisdiction to refuse it under section 36 of the Administration of Justice Act 1970 as amended if the premises are or include a dwelling-house: see Western Bank Ltd v. Schindler [1976] 3 WLR 341 and Ropaigealach v. Barclays Bank plc [1999] 3 WLR 17, CA, for the scope of the jurisdiction.

Also, no mortgagee would want to spend any appreciable time in possession because of the risk of incurring liabilities to the mortgagor. Mortgagees in possession are liable to keep the property in repair (see Downsview Nominees Ltd v. First City Corp. Ltd [1993] 2 WLR 86, PC) and also come under a duty to account to the mortgagor not only for any income or profits actually received from the property while in possession but also for whatever it could, but for its wilful default, have received. The classic authority on this duty to account is White v. City of London Brewery Co. (1889) LR 42 ChD 237, CA, although it has to be said that there is no modern authority on precisely what this would now involve. Also, if the premises are in active use as business premises and the business is viable, it might be difficult to avoid coming under a duty to carry on, or at least not sabotage, the business (see AIB Finance Ltd v. Debtors [1998] 2 All ER 929, where there was held to be no duty where the business had already collapsed by the time the mortgagee took possession). And, once a mortgagee does start to get involved in the management of the business, it then appears to come under a duty to do so ‘with due diligence’ (see Medforth v. Blake [1999] 3 All ER 97, CA, where a receiver was held to be in breach of duty to the mortgagor by failing to obtain a discount on pig feed; there seems no reason why the same should not apply to a mortgagee in possession).

18.4.3. Sale

The reality is that, when a mortgagee does take possession, or applies to the court for a possession order, almost invariably it does so in order to obtain vacant possession with a view to selling the property under its power of sale.

18.4.3.1.When the power arises

The mortgagee’s statutory power of sale is conferred by section 101(1)(i) of the Law of Property Act 1925, and arises ‘when the mortgage money has become due’