In considering the Bank's duties in relation to a sale of the property, it will be necessary to consider the various rights conferred on a mortgagee by virtue of granting the mortgage. Under section 101 of the Law of Property Act 1925 (LPA), the Bank as mortgagee will have rights in Apple Cottage, including the right to take possession of the property, to sell the property and to appoint a receiver. As David and Anne are in default on the repayments, the Bank has the right to sell the property to realize their security (Todd and Wilsons, 2007). Under section 101 of the LPA 1925, this power is implied into every mortgage made by deed, which further provides that a power of sale arises when the loan or repayment becomes due.
[...] Moreover, the power of sale must be exercised by the bank in good faith and as determined in the case of Cuckmere Brick v Mutual Finance ([1971] 2 All ER 633), the Bank has a positive duty to obtain the best price reasonably achievable. Furthermore, in the Cuckmere case the Court of Appeal asserted that failure to do so would render the mortgagee liable to account to the mortgagor. In the case of Williams and Glyn's Bank v Boland ([1981] AC 487, it was held the power of sale cannot be enforced against equitable co-owners in property. [...]
[...] The Court of Appeal rejected this argument and held that the cause of action arises once there is failure to make payments due under the mortgage and the accrued right isn't taken away by the exercise of a power of sale and right to sue for the mortgage debt arose at the time of that failure and, at that time, monies were outstanding on the security of the mortgage” (para and 20, per Longmore LJ). Conversely, in the case of Den Norske Bank ASA v Acemex Management Co Ltd ([2003] EWHC), in considering the mortgagee duty of care, Lord Templeman stated a mortgagee exercises his power of sale in good faith for the purpose of protecting his security, he is not liable to the mortgagor even though he might have obtained a higher price and even though the terms might be regarded as disadvantageous to the mortgagor”. [...]
[...] Alternatively, it is possible that the failure to take into account the added value to the property as a result of the planning permission will operate in Anne and David's favor in contributing towards the “proper recompense” owed to the Bank in line with the Bell rationale. In summary, the scenario indicates that the Bank's power of possession and power of sale are both exercisable. However, in applying for any order, the Bank will have a positive duty to ensure they secure the best price within the “acceptable margin of error”. [...]
[...] The transaction was complex and the issue in contention was the motive of the mortgagee in exercising the power of sale. The claimant in this case sought to set aside the mortgagee's sale on grounds that the power of sale was exercised for improper reasons. The key point at first instance was whether it was acceptable for a mortgage to sell the charged property if the mortgagee had mixed motives for the sale only one of which was to enforce security give by the mortgage. [...]
[...] Moreover, as determined in the case of City of London Building Society v Flegg ([1988] 1 AC the effect of section 30 of the LPA 1925 means that if there are two legal owners of a property, the equitable co-owners will be overreached upon the exercise of a power of sale by the Bank. Section 30 of the LPA 1925 further permits the Bank to ask the court for an order of sale and will be granted unless it can be establish that to be grant will cause exceptional hardship as determined in the case of Lloyds Bank v Byrne and Byrne 1993 FCR 41). [...]
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