Mortgages where Courts have Limited Powers to Assist

By: Louise Smith, barrister - Updated: 14 Nov 2016 | *Discuss

 

Most conventional mortgages are payable by monthly instalments. They are usually for a fixed length and at the end of the term the loan should be cleared. When a judge comes to consider what sort of possession order to make he will look at the payments the borrower has missed so far and decide whether the borrower can repay them over the remaining term of the mortgage.

All Monies Charges

However, there are some mortgages to which the court’s usual powers do not apply. These mortgages are known as “all monies charges” or, sometimes, “payable on demand mortgages”. This type of mortgage:

• Usually does not have monthly payments attached to it, with nothing being payable by the borrower unless and until the lender decides to make a formal demand for the whole debt;
• Probably secures a bank account and / or overdraft;
• Is often entered into by borrowers to finance a business;
• May have special conditions – for example the borrower may be required to pay a certain amount into their current account each month. If a term like this is breached the bank may lose confidence in the borrower and decide to terminate the agreement;
• May state on the Mortgage Deed that it is an all monies charge.

The Courts’ Powers to make Suspended Possession Orders

When dealing with this kind of mortgage the judge can only make a suspended possession order if he is satisfied that the entire mortgage debt - not just the payments in arrears - can be cleared within a “reasonable period”. Because there is usually no fixed term, a reasonable period in this kind of case is generally deemed to be no more than a few months. This may seem harsh but the reasoning behind it is that, because these loans are usually taken out to secure a business debt, the mortgage is considered to be a commercial arrangement. Naturally, this logic will provide little comfort to the family of a borrower who finds that their home is at risk because a business venture went sour.

Some of these mortgages do have a fixed term and monthly instalments, and are, therefore, almost indistinguishable from conventional mortgages. It is possible that either deliberately, or due to oversight, the lender or their solicitors will not draw attention to the nature of the agreement, resulting in the court dealing with it as if it is an ordinary mortgage. In such cases a judge might still make a suspended order if he is satisfied that the borrower can afford to make regular payments of the monthly instalment and an additional sum to clear the arrears. However, it cannot be assumed that this will happen.

Reaching an Agreement with the Lender

Even though the courts’ powers in respect of these mortgages are limited, lenders might still be prepared to enter into an agreement for a suspended possession order with the borrower. If the lender and the borrower can agree a payment plan by which the debt can be repaid, the judge who hears the case can still grant a suspended possession order. Such a possession order may be stated to have been made “by consent” to show that, although the judge had no power to impose it on the lender, the lender agreed to it being made.

Any borrower who receives a formal demand in respect of this kind of mortgage should immediately start looking at ways of repaying the whole debt and try to reach an agreement with their lender before the case gets to court.

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