LPA receivership empowers a secured creditor to enforce its security over property and they are an important strategic weapon of enforcement.
An LPA receivership appointment can be difficult to challenge. Receivers have wide powers, which are usually granted under the express provisions of the mortgage/charge and there are limited restrictions on that power.
Occasions arise however where the LPA receiver’s authority to act is challenged and the recent case of (1) Jumani (2) Tariq v (1) Mortgage Express (2) Walker Singleton [2013] EWHC 1571 (Ch) shows how such a challenge can arise.
In this case the LPA receivers were appointed over a portfolio of 55 properties following the borrowers’ default on the mortgage. The borrowers alleged that they had an agreement with the bank that the receivership would be terminated if they cleared the mortgage arrears.
The borrowers alleged that the oral agreement was reached during a meeting attended by the borrowers, the bank and one of the receivers. The borrowers also alleged that the receivers were failing to carry out the necessary repairs to the properties, thereby losing rental income from the buy-to-let portfolio. The bank however disputed the existence of the agreement and refused to terminate the receivership.
The Court held that under the terms of the mortgage deed, the bank was entitled to appoint receivers by virtue of the borrowers’ default. The Court also held that there was no obligation on the bank to terminate the receivership even if the arrears were cleared. Any variation of the mortgage terms could have only been effective if proven.
The express conditions of the mortgage deed made it clear that the receivers were agents of the borrowers and not the bank. The bank therefore had no responsibility for, or power over the receivers’ actions once a valid appointment had been made, despite the receivers’ principal duty being to the bank. Likewise, it was affirmed by the Court that there was no contractual relationship between the borrowers and the receivers, leaving the borrowers with no contractual recourse.
This case demonstrates the difficulties which borrowers have when challenging an LPA receivership appointment. The Courts will adopt a strict approach where a claim is made that the terms of the mortgage deed have been varied. It is also unlikely that any representations made by the receivers on behalf of the bank will be binding on the bank unless it can be shown that the bank took responsibility for and/or directed the actions of the receivers.
So in what circumstances might an LPA receiver be more vulnerable?
There have been cases where receiverships have been challenged successfully, especially in circumstances where the bank has interfered in the receivership or expressly directed the progress of and the strategy in the receivership. Often there is a fine line between LPA receivers recognising that the principal duty is owed to the bank but acting independently and the bank overtly or otherwise directing the LPA receiver’s actions.
An area more susceptible to challenge arises from the duty to obtain the best price reasonably obtainable at the time of the sale. In order to comply with this duty the receivers must ensure that the property is properly marketed, a sensible price is set and proper valuation and sales advice is obtained.
If the bank and/or the nominated LPA receiver suspects that a challenge might be likely post appointment then a proper evaluation of whether LPA receivership is the appropriate route to recovery needs to be undertaken ahead of any such appointment.
It may be that in some circumstances possession proceedings are a more appropriate way to proceed. It is recommended that advice is sought when banks/LPA receivers are faced with such issues.
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