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July 2010

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Item	MORTGAGE REPOSSESSIONS (PROTECTION OF TENANTS etc.) ACT 2010 (Commencement) Order 2010
Details	The Mortgage Repossessions (Protection of Tenants etc) Act 2010 (Commencement) Order 2010 was made on 29th June 2010 and provides that the Act (apart from section 4, which came into force on Royal Assent on 8th April 2010) comes into force: - For the purposes of enabling the Secretary of State to make regulations under section 2, on 30th June 2010 - On 1st October 2010 for all other purposes.
Summary	Where a residential mortgage lender claims possession of a property and there is an unauthorised tenancy, the court now has power to postpone the date for delivery of possession for a period not exceeding two months, and on any subsequent application by the tenant, the court can stay or suspend execution of an order, if the court has not already exercised its powers, subject if necessary to the making of payments. The requirement in section 2 that a lender must give notice at the property before executing an order for possession comes into effect on 1st October 2010 by which time it is anticipated that the Secretary of State will have made regulations in respect of the ‘prescribed’ requirements.

Case name	Southern Pacific Securities 05-2 Plc v Walker
Neutral citation	[2010] UKSC 32
Legal points	Consumer Credit Act 1974 – ‘credit’, ‘amount of credit’, ‘charge for credit’
Facts	Mr & Mrs W obtained a loan from SP in the terms of a Credit Agreement which contained the following information: A Loan £ 17,500 B Payment protection insurance (optional) £ - C Amount of Credit (A+B) £ 17,500 D Broker Administration Fee £ 875 E Total Amount Financed (C+D) £ 18,375 The loan was secured by a mortgage over Mr & Mrs W’s home. They defaulted in repayments and SP commenced proceedings for possession. The District Judge made a suspended possession order. Mr & Mrs W appealed. The issue was whether the ‘Amount of Credit’ was correctly stated. Mr & Mrs W claimed that the true amount of credit was not £17,500 but £18,375 and that accordingly the agreement was not enforceable because it did not correctly state the ‘amount of credit’ in accordance with Reg 6(1) and Para 2, Sch 6 to the Consumer Credit (Agreements) Regulations 1983 SI 1983/1553. The Judge agreed. SP appealed. The Court of Appeal allowed the appeal and held that the broker administration fee was an item entering into the total charge for credit and was prevented from S 9(4) of the 1974 Act from being ‘credit’ or part of credit, and that the true ‘amount of credit’ was therefore the amount of the loan exclusive of the fee. Mr & Mrs W appealed.
Held	The appeal would be dismissed. Section 9(4) provides that an item entering into "the total charge for credit" shall not be treated as credit. It follows that if an item is part of the total charge for credit, it cannot form part of the amount of credit, even if it would otherwise be regarded as credit. Wilson v First County Trust Ltd [2001] QB 407; Watchtower Investments Ltd v Payne [2001] EWCA Civ 1159 and Wilson v Robertsons (London) Ltd [2006] 1 WLR 1248 followed. In each of those cases it was stressed that the first step is to assess the total charge for credit because, as Mummery LJ put it at para 15 of his judgment in this case, those items financed by the creditor which form part of the "charge for credit" must be "identified and stripped out" before the "amount of credit" can be determined. The question is thus what was the true cost to the borrowers of the credit provided under the agreement. There are two items which have been the subject of debate. The first is the Broker Administration Fee and the second is the interest on that fee. As to the fee, there cannot, in our judgment, be any doubt that it was part of the total cost of the credit. It was a fee paid to intermediary brokers and, as such, was a cost to the borrowers of borrowing the £17,500 from SP. That is plainly so, even though it was itself borrowed from SP. Once it is accepted that it was part of the total charge for credit, it follows that it must be stripped out of the amount of credit and, by s 9(4) of the Act "shall not be treated as credit. Section 9(4) does not prohibit the charging of interest. If the fee itself was part of the total charge for credit, it seems to us to follow that interest on that fee was also part of the total charge for credit and not therefore to be treated as credit. As the court sees it, both the fee and interest on the fee are "other charges" within reg 4(b) of the TCC Regulations quoted above and are thus "included in the total charge for credit". There is no infringement of the principle of truth in lending. The agreement is in clear terms. In the box on the front it draws a distinction between "Amount of Credit", which in this case is the amount of the "Loan" namely £17,500 and the "Total Amount Financed", namely the "Amount of the Credit" plus the "Broker Administration Fee" of £875, which makes £18,375.
Comment	Despite the fact that the lender advanced the Broker Administration Fee and to this extent provided credit to the borrowers, such an item (together with interest on it) forms part of the total charge for credit, ie. it represented a cost to the borrowers of obtaining the credit advanced under the agreement.

Case name	Smith v Cooper
Neutral citation	[2010] EWCA Civ 722
Legal points	Co-ownership – undue influence – presumption – setting aside
Summary	This is not a mortgage case but it contains a useful reminder of the principles to be applied in cases involving the presumption of undue influence and whether the presumption is rebutted, and also the terms upon which the court would order a transaction to be set aside. In respect of the presumption of undue influence, it was common ground that this was a class 2(b) case (relationship of influence on the facts). However, once the presumption is raised, it is not enough to show that there was a reasonable explanation for the transaction or that it was not manifestly to the [innocent party’s] disadvantage. The key question was whether the presumption had been rebutted by showing that the [innocent party] had entered into the transaction of her own free will. Although the judge noted that a solicitor had advised both parties, he had clearly not offered the [innocent party] any independent legal advice and there was no basis on which the judge could conclude that the [innocent party] entered into the transaction as a result of her own independent free will. When setting aside a transaction the court is not concerned with the intentions of the parties but seeks to achieve ‘practical justice’ by reversing the transactions so far as practicable (applying Cheese v Thomas [1994] 1 WLR 129).

Case name	Kapoor v National Westminster Bank Plc
Neutral citation	Chancery Division, 13 July 2010
Legal points	Bank guarantee - undue influence - independent legal advice
Summary	This is not a mortgage case but involved an appeal against a bankruptcy order on the petition of a bank based on non-payment of a guarantee. Before the execution of the guarantee the bank had written to the appellant K explaining the extent of her liability and advising her to obtain independent legal advice. In fact she was advised by her husband’s solicitor who returned the guarantee with a certificate stating that it had given her independent legal advice. The bankruptcy registrar held that this was enough and the bank had not taken with constructive notice of any undue influence. K appealed, contending amongst other things that she had not been given sufficient advice. It was held that the certificate went beyond what was required in Royal Bank of Scotland Plc v Etridge (No 2) [2002] 2 AC 773. It was sufficient that K had been seen by her husband’s solicitor. The bank was entitled to rely on the certificate and did not take with constructive notice. A full report will be provided once a transcript is available.

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FSA Consultation Paper 10/16 Mortgage Market Review – Responsible Lending

Details

On 13th July 201 the FSA published a further Consultation Paper in its mortgage market review, with proposals to ensure all mortgages are carefully assessed to make sure borrowers can afford them. The FSA Press Release identifies the following main proposals: • Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer's ability to pay; • Requiring verification of borrowers' income in every case to prevent over inflation of income and to prevent mortgage fraud; • Extra protection for vulnerable customers with a credit-impaired history. Responses are requested by 30th September 2010 (questions 16-22 about interest-only mortgages and questions 33-34 about non deposit-taking lenders) and 16th November 2010 in respect of all other questions.