Impact of negative equity on possession proceedings

Housing Rights Service solicitor, Carmel Ferguson, provides a round-up of some recent cases heard in the Chancery court in Belfast. They look specifically at the matter of repossession when a property is in negative equity and also the legal procedures to be followed when a lender takes action for possession.

1. Swift Advances v Justin Heaney, (Master Ellison, 9th September 2013)

In this case, Swift held a second charge on a property. They applied for a possession order following the build up of arrears on the secured loan. The property was in negative equity which meant that Swift had no prospect of receiving any financial benefit from the sale of the property.

The Master refused to make a possession order because of the lack of equity in the property. The Master said that a court should not be asked to make a possession order when the purpose was not to realise or protect the lender’s security but “apparently to hold the threat of eviction over a borrower to coerce him in to payment or punish him for his default."

Quoting a previous judgment, the Master said “it would be a sheer waste of time and money to do so and I do not think that the court ever should in its discretion make an order which it is convinced would be an order of futility and waste.“
(Please note that this case is being appealed.)

2. In GE Money v Morgan, (Master Ellison, 9th September 2013)

The Master refused to grant leave to enforce a suspended possession order .The estimated market value of the property in question was £135,000. However, the property was in negative equity as the first charge lender was owed £155,000. This meant that the second charge holder, who sought the sale of the property, would gain nothing from it being sold.

The Master held that in this case, for the time being at least, the defendant’s right to respect for his home (in accordance with Article 8 of the European Convention on Human Rights) outweighed the plaintiff’s right to possession.

3. Santander v S1 and S2 [2012] NICH 16

Santander sought possession of the defendants’ home due to mortgage arrears. A possession order was granted by the Master and the defendants appealed to the High Court.

The High Court overturned the possession order on the basis that the mortgage deed was incomplete as it did not contain the correct details of the property which was mortgaged. The Court held that the conveyance of a particular piece of land which was owned by the borrower to the lender was an essential proof required and as this information was not contained in the legal documents a possession order could not be granted. The legal documents should clearly show the land which was being mortgaged and in this case that had not been done. The Court, therefore, overturned the possession order.

The Court did, however, give the lender leave to convert the legal action to a writ which means the lender can still pursue legal action against the borrower for the money owed.

4. Swift 1st Limited v McCourt [2012] NICH 33

In this case the court looked at the procedure for swearing affidavits in possession proceedings where the lender did not have a legal ownership of the charge or loan. It set out that the following procedure should be followed:

i. After lists of documents have been exchanged there should be an inspection of those documents.
ii. The solicitor acting for the financial institution should warn the proposed deponent (a person who makes an affidavit under oath) on behalf of the financial institution of the serious consequences of swearing a false affidavit.
iii. The solicitor should confirm to the court that the deponent has been so advised before the affidavit is sworn.
iv. The deponent, on behalf of the financial institution, should then swear the affidavit dealing with the plaintiff’s title to seek an order for possession.

Failure by the lender to follow the above procedure led to the refusal of the court to grant a possession order in the case of Santander v Carlin and Hughes [2013] NICh 14. In that case, the affidavit by the lender was sworn by the lender’s solicitor (as is often the case). The affidavit stated that the mortgage had not been assigned. This was not correct. Furthermore, the lender was directed to serve a further affidavit and did not do so within the directed time. The court stated that this “shows a disregard for the orders of the court which would be disreputable to a litigant in person and is equally disreputable on the part of a large commercial organisation which should know better.”

The court granted an appeal by the borrower and overturned the possession order

For a full report on some of these cases go to www.courtsni.go.uk

Carmel Ferguson is delivering a training course on how to spot a protected tenancy when conveyancing. Further details and to book can be found here.