Property Law: Repossession - Assignment Example

and Part A Introduction This case is about property law and specifically repossession by a lender. The facts of the case are that Ben and Ali had bought a home, Valiant Villa, for £300,000 as registered freeholders. They secured a mortgage of £125,000 against it in which they made monthly repayments from their joint account. Ali got a prospective job, model scout and agent, that Ben did not fully approve of. This job needed financing and so Ali got Ben to sign another mortgage of £110,000 without explicitly stating that this was a new mortgage leaving Ben to believe that this was some form of mortgage repackaging. Ali used her accountant, Devi, to talk Ben through the mortgage papers. Devi however made it clear that Ali’s job is dependent upon his cooperation. Ali’s investment then failed and made Ben and her to default on their repayments. Their banker, Cantander Bank, initiated the move to repossess the property so as to recover the mortgage amount but Ben is unaware that he signed a second mortgage and is surprised by the move. Repossession is a legal process where an owner’s right to own a property is terminated usually because he or she has defaulted in payments1. Repossession of a mortgaged property usually occurs when the borrower defaults on the regular payment for sometime as stipulated by the terms and conditions of the lender, in this case Cantander Bank. Following the circumstances involved in this case, the bank has a right to recover the owed amount by repossessing and selling Valiant Villa. It is a straightforward case that the two, being joint account holders, make decisions jointly. The fact that the signatures of both partners were appended in the mortgage is enough evidence that each partner consented. It is not up to the bank to determine how the consent was obtained as this is a private, or even a homely, matter2. The bank can point out that it was Ben’s negligence and/or mistake that cost them their family home. A mistake is an erroneous belief that leads one to believe certain facts are true during contracting3. In this case Ben believed that they were repackaging the first mortgage of £125,000. The law provides that a contract cannot be rendered voidable because it was caused by a unilateral mistake of this nature. Furthermore, Ben acted negligently when he signed the papers without exercising due diligence to know what he was really signing. Negligence is defined as the failure to exercise care where an otherwise prudent person would when in a like circumstance4. While the real relationship between Ben and Ali is unclear, it is evident that there is mutual trust. The fact that they hold a joint account also shows the amount of trust and confidentiality between them. However, in matters concerning mortgaging a family home it is expected that one will take due care to read and understand the seriousness and the nature of implication of contract being signed. Ben did not do that, neither did he seek independent legal counsel if he did not understand. The bank therefore reserve the right to reposes the property, sell it and recover the amounts loaned to Ben and Ali. However, Ben can use undue influence as his defence and prevent Valiant Villa from being repossessed by Cantander Bank. This is because the courts of law are courts of conscience, they not only apply the law to the letter but also apply them in such a way that justice is served as in the case of Royal Bank of Scotland v. Etridge 5. The courts have the obligation to determine how consent was obtained. The manner in which the intention to enter the contract was secured is material in cases of repossession especially of a family home. If the court finds out that the consent was obtained through unacceptable or improper means then the court should not allow such a transaction to stand6. In this case, Ben’s can use the undue influence defence by arguing that his consent was not secured in a proper manner. Since Ali knew that Ben did not approve of her job and had instructed her to get a ‘real job’, she understood that Ben will most likely shoot down the idea to secure a second mortgage against their home to finance a job he barely supported. The act of Ali amounted into trickery since she did not explicitly provide the details of the mortgage and she sent her accountant to talk Ben through the mortgage papers fully knowing that Ben would let down his guard when dealing with an accountant. Devi, the accountant, therefore, also misused his powers and expertise in financial matters. In the Royal Bank of Scotland v. Etridge case the judges established two forms of undue influence. The first one is where actual pressure or coercion in form of threats is used, sometimes confused with duress, the second one is that which is based on the relationship between two parties and one party takes advantage of the other. Ben v. Cantander Bank plc case is the second form. Ben placed sufficient trust and confidence in Ali placing Ben in a vulnerable position. This trust and confidence was later abused leading to Ben being exploited for Ali’s personal interests. Ben will therefore have to prove that he placed trust and confidence in Ali and that the transaction entered needed explanation. Ben can also put the bank on inquiry, just like in Barclays Bank plc v OBrien7, and argue that the lender, Cantander Bank, did not follow the rules hence declaring the process procedurally ultra vires. Before getting into the contract the bank should have advised the clients to seek independent legal advice, nothing to that effect was done. Instead the bank did let Ali act on its behalf in engaging Ben. Ali, in turn, engaged her accountant to act as a solicitor. The advice given by Devi was therefore not independent and placed Ali at an advantaged position with superior bargaining powers. The cases of Lloyds Bank Ltd v. Bundy and Maskell v. Homer [1915] 3 KB 106 provided useful insight into the issue of bargaining power. In these cases the English Law established that where one, without independent advice, enters a contract where his bargaining power is grievously impaired either due to ignorance, self interests and desires or infirmity for the benefit of another person, the courts will offer the person a relief. While the solicitor is not necessarily an agent of the bank, the bank should ensure that the parties have consulted one by making this right known to them in writing; Cantander Bank did not do this giving an opportunity for Ali to take advantage of the situation. Also, Devi acted as that legal advisor but did not fulfill the responsibilities of the legal advisor. For instance, he did not explain why Ben was being involved; he only made a statement to the effect that Ali’s job was dependent upon Ben’s co-operation and nothing more. The implications of signing the documents were not fully understood by Ben. The advisor should first seek confirmation from the client that he wishes to be represented by that advisor in that particular transaction, Ben was not asked this and neither did he explicitly or impliedly comply with that arrangement. Lastly, Devi failed in his duty to act as an advisor by failing to make clear the implications, the nature and practical consequences and the seriousness of the transaction8. It was the responsibility of Cantander Bank to ensure that Ben and Ali, the two people privy to the contract, clearly understood what they were appending their signatures to. There are many cases in the family where a man or his wife uses undue influence to get the other partner to mortgage the family house. The law comes to prevent any harm by stopping repossession even if the bank is not at fault. A precedent was set in the case of Hewett v First Plus Financial Group9 which was based on undue influence in matters of mortgage and repossession. In this instance Mr. Hewett, Mrs. Hewett, their children and Mrs. Hewett’s mother jointly purchased a family home. Mr. Hewett had credit card debts and needed to pay them off through refinancing. He forged the mother-in-law signature consenting to a mortgage. He then told his wife that that is the only way his debts can be paid or else they will lose their family home through repossession by the lenders. Mr. Hewett promised to make repayments for this mortgage. Unknown to the wife, Mr. Hewett was having an affair with another lady, this later led to a divorce and bankruptcy of Mr. Hewett. Plus Financial Group initiated the repossession process due to Mr. Hewett’s inability to make the regular payments. The courts held that Mrs. Hewett had put sufficient trust and confidence on her husband which was later abused. She participated in the decision believing that the husband was acting in the best interest of the family and marriage and never knew about the clandestine affair. The affair thus was a material fact and should have been made clear so that Mrs. Hewett can make an informed decision. The emphasis is not on the decision making but the objectivity of the parties involved; this is the test for disclosure in these types of cases. The repossession could therefore not take effect and Mrs. Hewett was excluded from the liability to pay it back. The case bears much resemblance with Ben v. Cantander Bank. Even if the bank can be excluded from any wrong doing, Ben can still use the undue influence defence following the footsteps of Mrs. Hewett. This is because in Ben’s case he also placed trust and confidence in Ali and believed that Ali was acting in their best interest. He participated in the final decision not knowing that Ali was planning to use that money to finance Cait Miss, her client who was a model. Ali was therefore not objective in her disclosure. The fact that Ali intended to use this money to finance a job Ben did not approve of was material and should have been disclosed. Just like in the case of Hewett v First Plus Financial Group, the court should rule in Ben’s favour protecting him from being exploited and maintain common fairness. Part B Dynamic and Responsive Nature of the Property Law The property law is one of the laws under the English Law and also called the English Land Law. The law has been developing since the 17th century and has been evolving too to suit the changing times and circumstances. This law provides instruction on acquisition of property, the priority of rights and the obligations of the parties involved in a transaction10. Under the ECHR article 8, this law is supposed to protect the human rights involved in cases that relate to land and other immovable properties. The rights envisaged here are the rights to a home and that of peaceful enjoyment of property. The English Law has continuously been modified to be in line with ECHR and First Protocol. Before 1920, the evidence of property right was only on paper, for example the title deeds and receipts. But currently, the law recognizes property rights that are superior to personal rights and have privileges more than personal rights. In the English property law the property rights are generally stronger than personal rights. The European community has introduced human rights in the issue of land law and this has led to several competing rights. Competing Rights Competing rights are basically those rights that are involved in a dispute and both parties have a claim11. The enjoyment of one party’s rights lead to the infringement of the other party’s rights and freedoms. This has brought with it a dilemma over which rights should be given preference. In this case the two competing parties are Ben and Cantander Bank. In this instance, the competing rights are the lender’s right to recover the amount loaned while Ben’s right is to a possession of a family home without any unjustified disturbance. Under the property law, creditors are entitled to proprietary rights, otherwise known as security interest. They have the right to secure their debt repayment in all due fairness. The property law goes further to separate the “beneficial” ownership from the legal ownership of property. In this sense, a court of law and equity can stay a repossession undertaking so as to allow the person whose property is in danger of being repossessed to find ways and means to repay the mortgage. In Manchester CC v. Pinnock12, the Supreme Court issued an instruction to the other UK courts in form of precedence by stating that the courts have a mandate to assess whether any an infringement to one’s right to a home is justifiable or at least proportionate. The UK Supreme Court in effect gave preference to one’s right to a home over the lender’s right to recover debt payments unless the circumstances clearly justify so13. The law further galvanizes the superiority of the right to a home by providing that before initiating the repossession process the lender must first exhaust all the other means of recovering the debt. The bank should actually avoid repossessing the property by making all the reasonable efforts in their power. Repossession is therefore the last resort after the other fail to work if not so the court may order the postponement of the recovery and order the two parties to go and try to work things out first14. Among the steps that Cantander Bank should have taken before initiating the move to repossess Valiant Villa include; making a mortgage protection insurance claim, extending the term for mortgage repayment thus allowing Ben more time to figure out, applying for a government mortgage rescue, renting out the villa and use the rent as repayment, asking Ben to make some payments to show the good faith towards repayment, or even taking back the keys thereby pressuring Ben to start making the payments. The law has also been responsive in the sense that it has taken into consideration other aspects that were not previously covered in the law; it is thus growing. For instance, the law has provided that in the case of non-earning partner who had jointly taken a mortgage against their house, they will be both jointly and severally responsible for the loan repayment. It has also permitted the changing of a single-owned property to joint tenancy on a freehold basis. Most significantly, the property law responsiveness has been evident in the cases where husbands are behaving in such a way that puts the family home in jeopardy placing the wife and children in the danger of losing their family home. In such an instance, the Property law provides that the court has the right intervene to save the property. In the properties where there is joint ownership but one spouse deserts or neglects the payment of a mortgage registered against that property, the court allows the property to revert to single ownership in favour of the one that has been continuing with the payments15. These are just some of the instances where the law has taken into consideration the changing landscape. Responsibilities The law also provides for obligations and responsibilities of the parties to a contract in the matters concerning land and other immovable properties. For example, it was Ben’s responsibility to carefully read the provisions of the mortgage papers before signing them. Where the defense of undue influence cannot be applied the court should let such a transaction stand. The borrower, in this case Ben and Ali, have a responsibility to seek legal advice if they do not understand the implications and the seriousness of what they have been given to append their signatures to. It is also their responsibility to act in good faith and make their repayments at the regular basis as shall be determined by the contract. The lender or mortgagee has the responsibility to provide the loan and to instruct the party or parties taking the loan to seek independent legal advice before consenting. Otherwise the lender will risk not recovering the mortgage amount if they fail to discharge this duty, and it should be made in writing as a disclaimer. If the bank or the financial institution is put on inquiry, they will be obligated to show that the complainant took independent legal advice on the transaction and also that the transaction was not made to the manifest disadvantage of the complainant. The lender therefore has a responsibility of ensuring that the two contracting parties are at the same level of bargaining power and that the one taking the mortgage is not impaired by necessity, infirmity or ignorance into signing the mortgage contact. In Maskell v. Homer16, the judge provided that the contract would be voidable if; the terms of the mortgage were unfair, the borrowing party had lower bargaining power based on ignorance, infirmity or necessity, undue pressure was used to obtain consent and there was absence of independent legal advice. These requirements sum up the responsibilities of the mortgagee. Home Interest As for the home interest, they certainly will affect the outcome of the repossession decision. Interest in a matter is defined as having personal concern, portion or share17. The interests are not legal rights but in some cases they may be elevated to legal rights. One of those cases is when a family home is the subject of repossession. Due to the right of a person to a home being superior to personal rights, the interest that one has in occupying a home are also superior to that of a mortgagee. Ben’s interest in the home is superior to the bank’s caveat interest in the house. When a borrower takes a mortgage the bank registers caveat interest on the property. If the borrower defaults then the bank has a right to attach the asset to the debt. This gives a rise to an interest through equitable charge as in the case of Iron Resources Pty Ltd v. Argyle Iron Ore Pty Ltd18. The property law has also shown that it recognizes a spouse contribution and therefore his or her home interest in a family home. This is evident in the case of U.S v. Barr. In this case a house was being repossessed because of the husband’s tax liability. The court ruled that since the wife also had made some contributions in the home it was not fair for her to lose the home because of her husband. It therefore split the proceedings from the sale of the house into two with the bank getting the other half19. In another case, Williams and Glyn’s Bank v. Boland, Mr. Boland secured a mortgage against the family home without the consent of his wife. She was however not registered on their home’s title deed but had made significant financial contributions. The House of Lords agreed that Mrs. Boland was actually occupying the home; therefore, her interest bound that of the bank. In this regard, Ben chances of winning the case to retain the Valiant Villa increases. However, it is not always that the court will give preference to the borrower who is in the danger of being rendered homeless. A good example is in the case of Bristol and West Building Society v. Henning and that of Abbey National Building Society v. Cann. In both cases the borrowers acquired family homes with the assistance of a loan which was then mortgaged against the houses. When they defaulted in payment and the banks initiated repossession the courts ruled in the favour of the banks stating that the home buyers could not have secured their home were it not for the loans by the banks. It further stated that the borrowers had tacitly consented to the banks’ interests being given the priority the moment they accepted the bank to fully finance their home acquisition20. This principle shows that there are instances the bank interests are prioritized against the home owners’ interest. However, this situation does not arise in the case of Ben and Ali since they had already bought a home before securing any mortgage. References Primary Sources Barclays Bank plc v OBrien (1994) 1 FLR Hewett v First Plus Financial Group (2010) EWCA Civ 312 Maskell v. Homer [1915] 3 KB 106 Iron Resources Pty Ltd v. Argyle Iron Ore Pty Ltd [2009] WASC 20 Royal Bank of Scotland v. Etridge (No. 2) (2001) 2 FLR 1364 Secondary Sources Beale B; Furmston E, Contract: Cases and Materials (OUP 2008) Collins H, The Law of Contract: Law in Context (CUP 2003) Feinman J, Law 101(Oxford University Press 2010) Hudson A, New Perspective on Property Law: Human Rights and the Family Home (Routledge 2012) Shelter Cymru, “Possible Defences” (Shelter Cymru, February 2013) < http://www.sheltercymru.org.uk/get-advice/get-advice-online/mortgage-repossession/going-to-court/possible-defences/> Accessed 11th December 2013 Slayton, “The Unequal Bargain Doctrine” (1976) 22 McGill Law Journal 94 Stroud A, Making Sense of Land Law (Palgrave 2011) Read More