Palk v Mortgage Services Funding plc
The court can order the sale of a mortgaged property at the request of the mortgagor, even though the proceeds will not repay the loan in full, where it would be unfair to the mortgagor to refuse.
Facts
Mr and Mrs Palk mortgaged their home to secure a loan of about £300,000. They fell into arrears. The value of the house fell sharply, and the debt, which was increasing because of interest, grew to much more than the value of the house. The Palks found a buyer willing to pay £283,000 and applied for an order for sale under section 91 of the Law of Property Act 1925. The lender opposed sale, because it wanted to take possession and let the house until the property market recovered, while the interest continued to increase the debt.
Legal principle
The Court of Appeal ordered sale. Sir Donald Nicholls V-C said that a mortgagee owes a duty to act fairly towards the mortgagor, and the court has a wide discretion under section 91 to order sale, even where the proceeds will be less than the debt, and even against the wishes of the mortgagee. The lender's plan to let the house and wait would cause the Palks' debt to increase greatly, because the rent would be much less than the interest. If the lender wanted to speculate on the property market, it could buy the property itself.
Related cases on mortgages
- Barclays Bank plc v O'Brien [1994] 1 AC 180
- Biggs v Hoddinott [1898] 2 Ch 307
- Cheltenham & Gloucester Building Society v Norgan [1996] 1 WLR 343
- CIBC Mortgages plc v Pitt [1994] 1 AC 200
- Cityland and Property (Holdings) Ltd v Dabrah [1968] Ch 166
- Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949
- Fairclough v Swan Brewery Co Ltd [1912] AC 565
- Four-Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317
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