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Sales at an undervalue

MY HOUSE WAS REPOSSESSED BY MY MORTGAGE LENDER AND I HAVE FOUND OUT THAT IT IS ABOUT TO SELL IT AT WHAT I THINK IS AN UNDERVALUE, LEAVING INSUFFICIENT TO PAY OFF MY MORTGAGE. IS THERE ANYTHING I CAN DO ABOUT IT?

Your mortgage lender owes you a duty in equity to take reasonable care to obtain the best price reasonably obtainable for the property. 'Best price' = market price": Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949.

There are two things you can do. One is to try and stop the sale from going ahead by obtaining a court injunction. The other is to see what price the property actually sells for and then consider bringing proceedings against your lender for an account - to recalculate the balance of your mortgage account having regard to the price which the lender ought to have obtained: Standard Chartered Bank v Walker [1982] 1 WLR 1410

WHAT KIND OF EVIDENCE DO I NEED. MY LOCAL ESTATE AGENT SAYS THAT HE COULD HAVE SOLD THE PROPERTY AT A MUCH HIGHER PRICE AND IS WILLING TO LET ME HAVE A NOTE TO THIS EFFECT. WILL THIS DO?

It is useful for starters, but you are probably going to need more. You bear the burden of proof (unless the lender is selling to a connected company). It is no good suggesting that another selling agent might have sold the property for more, you need to show, on a balance of probabilities, that your mortgage lender has failed to take reasonable care to obtain the best price in the particular circumstances.

Remember that the duty is only to take reasonable care. The court will allow a 'bracket' or margin of error, typically around 10% (although this may vary depending on the case): Michael v Miller [2004] EWCA Civ 282.

You really need at least one detailed breach of duty report preferably from a qualified valuer (as opposed to an estate agent) which not only establishes the market value for a property of this type in these particular circumstances (usually relying on 'comparable' valuation evidence) but also goes on to identify some failing or error by the lender in realising this price. Remember that most lenders will take the precaution of obtaining at least two valuations of the property before selling it, so if you are contemplating bringing a claim against your lender, it might be an idea to write to them and ask for voluntary disclosure of the valuation reports on which they rely and if you obtain them,let your valuer see them and comment on them.

WHAT ELSE WILL I NEED TO CONSIDER?

It is important to bear in mind that each case turns on its own particular facts, but the main things to consider are:

(1) Whether your lender has adopted the most appropriate manner of sale having regard to the particular type of property - whether by sale by private treaty, tender or auction: Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349

(2) Whether there has been a satisfactory and appropriate period of marketing: Bishop v Blake [2006] EWHC 831 (Ch)

(3) Whether the lender has followed up expressions of interest and has a proper paper trail to demonstrate what it has done at each stage

(4) The more unusual the property - the greater the duty on the lender to obtain specialist valuation and marketing advice and assistance: Michael v Miller  [2004] EWCA Civ 282 (a 200-acre Gloucestershire Estate planted out with thousands of lavender plants)

(5) Fundamentally, since the claim is for an account, it is important to bear in mind that you only have a worthwhile claim if you can demonstrate that allowing for the 'bracket' or margin of error, the market value of the property exceeds the actual sale price plus any arrears on the account

HOW QUICKLY IS THE LENDER REQUIRED TO SELL? IF PROPERTY PRICES ARE FALLING SURELY IT HAS TO ACT QUICKLY WHEREAS IF PROPERTY PRICES ARE RISING, WOULDN'T IT BE BETTER TO DELAY?

As a general rule, a lender is not a trustee of its power of sale for the borrower, so it can consult its own interests as to when and in what manner it sells.

However, this now has to be read subject to the particular provisions in Rule 13.6.1 of the Mortgage Conduct of Business Rules, which, in respect of regulated mortgage contracts entered into after 31st October 2004, provides that a lender must ensure that steps are taken to (1) market the property for sale as soon as possible, and (2) obtain the best price that might reasonably be paid, taking account of factors such as market conditions as well as the continuing increase in the amount owed by the customer. This last requirement inevitably means that the lender has to draw the line somewhere, and that it may be appropriate to sell sooner, rather than continue marketing, if there is a risk of going into negative equity.

It must be remembered that in practice, lenders are allowed a reasonable time in which to obtain valuations, appoint agents, and carry out a marketing exercise

I WAS TRYING TO GET PLANNING PERMISSION AT THE TIME MY PROPERTY WAS REPOSSESSED. THIS WOULD HAVE MADE A BIG DIFFERENCE TO THE VALUE OF THE PROPERTY. SHOULDN'T THE LENDER BE REQUIRED TO PURSUE THIS AND MAXIMISE THE PRICE?

There are differing views on this. While the selling agent must certainly be alert to unlocking any special value in the land, such as planning 'hope' value, or 'ransom' value: Freeguard v Royal Bank of Scotland [2005] EWHC 978 (Ch) he is not strictly required to spend money on speculative applications. Your lender is entitled to sell what it has got.

I HAD A PORTFOLIO OF BUY TO LET PROPERTIES WHICH WERE MORTGAGED TO MY LENDER. INSTEAD OF REPOSSESSING THEM, MY LENDER HAS APPOINTED 'RECEIVERS' WHO ARE IN RECEIPT OF THE RENTAL INCOME AND WHO ARE PROPOSING TO SELL THE PORTFOLIO AS A WHOLE RATHER THAN MARKETING THE PROPERTIES FOR SALE INDIVIDUALLY. CAN THEY DO THIS?

Your lender will almost certainly have the right to appoint receivers who will typically be on or two surveyors or accountants whose job it is to take control of the properties with a view to discharging the mortgage debt. Sometimes this might be achieved by simply diverting the rental income to the lender. In other cases, the receivers will probably have to sell the properties. Whilst it may be possible to split the portfolio and sell only what is required to discharge the mortgage debt, strictly, the lender is entitled to sell the entire security and account to the borrower for any surplus.

Receivers, like lenders, owe the same duty to obtain the best price reasonably obtainable, and depending on the evidence it may be appropriate to sell the whole portfolio rather than marketing the properties individually: Bell v Long [2008] EWHC 1273 (Ch)

For the duties of a Law of Property Act Receiver see Silven Properties Ltd v Royal Bank of Scotland [2004] 1 WLR 997, and for the duties of an Administrative Receiver see Raja v Austin Gray [2003] Lloyd's Rep PN 126

IS THERE A LIMITATION PERIOD APPLICABLE TO ANY CLAIM AGAINST MY LENDER FOR BREACH OF DUTY?