Mortgage shortfalls and the Appeal Court : LUSENET : Repossession : One Thread

I am looking at a copy of the Guardian 'Money' section June 24th 2000. Barrister Richard Colbey reports on a case which the Skipton building society *lost* at the Court of Appeal over an instance where they had sold a property at undevalue. It was a business premises, but apparently the same principles will apply to all repossessed borrowers. The Court of Appeal took the view that "Once there is evidence that a property had been sold at undervalue, the courts should no longer assume that the fact of the forced sale reduced the price. The lender would still have to have taken reasonable steps to secure that value. Anyone being chased by a lender for arrears [here meaning mortgage shortfall] that existed after their home was repossessed should rely on this case if they are not satisfied. It may be that lenders will have to adjust their arrears figures in cases where the price was suspiciously low.' [This is especially the case in instances where the purchaser could be said to have some benefit - e.g. the leaseholder, a neighbour wishing to join two properties together, the estate agent, etc.] Further, 'The fact of the forced sale itself often won't affect the value at all. Indeed, the fact that there is no owner-occupier means that there is no chain and that the seller can be flexible about completion dates. This, in turn, might actually increase the price that should be obtained.' Well, so says the Guardian's resident barrister-who-explains-things, Richard Colbey. Perhaps we ought to thank John Stott who took on the Skipton. I hope this might be of use to someone out there. all best Eleanor

-- Eleanor Scott (, July 12, 2000


Centralised lenders and Banks who do not come under this act ie, Building Society Act 1986 it would be interesting to hear from Richard Cobley on this point or is or would it be yet another Legal Loophole-The case its self is excellent news but were the Judges swayed by the fact that it was Business premises and subject to Business Rates? Before you all go dashing off to your keyboards-its just that these are some of the points im sure that will be used next time around-if we Look at many cases re -repossessions we build our hopes up then dashed by the next case! Repossessions needs its own Act Of Parliament with Strict laid Down Guidelines-TONY BLAIR were are you a General Election Looms and still we have case after case even whilst you have been in Power .No comments from the Conservatives or LIb Dems so lets see some action from some we hope who read these Pages

Charles Twford

-- charles twford (, July 12, 2000.

Charles, no, it appears that the judges weren't swayed by the fact that this was business premises. Even even if they were swayed on some kind of subconscious level, the point is, to quote barrister Richard Colbey (again!), 'The Court of Appeal has ruled against the Skipton Building Society in a case which may help *homeowners* who have suffered repossession at the hands of mortgage lenders' [my emphasis]. What swayed the judges was apparently the fact that the property was not marketed in the same way as other non-repossessed properties would routinely be marketed. And the judges didn't just reduce the claim - they disallowed the Skipton's entire claim. On to another point. Are you saying that banks like, say, the Halifax and Abbey National aren't covered by the Building Societies Act? (which says that the seller is required to ensure that the price is 'the best that can reasonably be obtained'). Richard Colbey says that *anyone* being chased by a lender should rely on this case if they are not satisfied over the marketing and the sale price of their repossessed home. Anyway, it certainly seems it might be worth investigating this little-publicised judgement further. all best, Eleanor

-- Eleanor Scott (, July 13, 2000.

For anyone interested in reading the Guardian article referred to in this discussion, its here,4273,4033047, 00.html

-- pendle (, July 13, 2000.

I have read the article in the Guardian Archive,that is why i asked those very Questions it did Quote The Building Societies Act 1986, What i stated still stands-that if Richard Colbey could kindly clarify this Question!re the case.

That the whole Repossession should become an Act of Parliament with clearly defined guidelines is what i still stand by!

Having seen the whole repossession process both in and out of courts it is only changed by each case law not by STATUTE! which can take years and alot of stress.

The deed,Mortgage,borrower,title,land acts,data protection acts and so on! all bound up in law and setup statutes like as quoted the Building Societies Act.

Yet the very taking although legally of a persons home THE ACT OFF REPOSSESSION nothing -shortfalls -property valuation etc

We need a an Act of Parliament

Charles Twford

-- charles twford (, July 13, 2000.

Here is the law report on this case:


A failure by a mortgagee to obtain the best price reasonably obtainable on the sale of the mortgaged property did not release a guarantor from liability, but only reduced that liability pro tanto. The correct measure of damages for such a failure was not the loss of the chance of obtaining a better price, but the difference between the price achieved and the price which could have been obtained.

Appeal by the second defendant ('Stott') against the decision of Mr Recorder Duggan by which he gave judgment for the claimant building society ('the Society'), in the sum of #14,930.58, which was #2,500 less than the Society claimed. The issue raised on appeal was a determination of what rights the lender of money secured by a property mortgage had against a guarantor of the loan, when the lender had exercised its right to sell the property as mortgagee. The Society was the mortgagee of commercial premises. Stott was one of the guarantors of the mortgagor's liability to the Society under the mortgage. Upon the Society appointing administrative receivers in respect of the premises, an offer of purchase in the sum of #122,500 was received directly from the owners of an adjoining property. That offer was accepted by the Society in January 1995, but the sale was not completed until April 1995, at which time the balance on the mortgage account exceeded #135,000. The Society brought proceedings against, inter alia, Stott to recover the amount of the shortfall. Stott contended, and the judge found, that the Society was in breach of its duty to obtain the best price reasonably obtainable in that: (i) it failed to advertise the premises; and (ii) it failed to take sufficient account of the fact that the value of the premises was affected by a special interest purchaser. Stott contended that the effect of the Society's breach was to release Stott from all further liability. The judge rejected that contention, on the basis that the breach was a breach of a warranty only, and not a breach of condition, but held that the negligence of the Society had caused the loss of a real chance of obtaining a better price, to which he ascribed a value of #2,500. This led him to reduce accordingly the amount for which he gave judgment in favour of the Society. Stott appealed, renewing his argument that the effect of the Society's breach was to release him from liability under the guarantee.

HELD: (1) A creditor's failure to obtain the proper value of a security which he sold did not amount to variation in the terms of the debtor's contract which entitled the guarantor to be discharged in toto, but only reduced pro tanto the amount for which the guarantor was liable. (2) The judge had been wrong to calculate the amount of that reduction on the basis of the loss of a chance. The proper measure was the difference between the price actually achieved and the price which could reasonably have been obtained. In the instant case the net proceeds of a sale at the best price reasonably obtainable would have been sufficient to discharge the amount due on the mortgage account.

Appeal allowed.

Michael Mulholland instructed by Farleys for Stott. Paul Brook instructed by Walker Foster for the Society.

-- pendle (, July 18, 2000.

The result of this case is a very good step to fair justice-but sadly there is another case which is earlier than this were the lender and estate agent stated the house had been vandalised,so lowering the price-although it was proved that the borrower had already left the house and hence was not there -ie the vandalation took place after the premises had been checked and signed for and this was later agreed at an appeal hearing by a Circuit Judge-but still allowed the lower price to stand -making the Shortfall Higher.

This case i agree comes after that one but it still one excuse that can be used!

Charles Twford

-- charles twford (, July 19, 2000.

The good thing about the Skipton v Stott case is that in instances where stuff like 'vandalism' is claimed as an excuse for a low sale price the lender will probably now need to prove this properly. Ex-borrowers should also bear in mind that many of their properties will still be covered by buildings insurance, e.g. because their property was leasehold and there's a blanket insurance policy. Whatever, always check the 'statement of account' to see if your lender made an insurance claim, and insist on further and full details anyway. Ask questions - how serious was the vandalism? Was it properly recorded? How? (A couple of broken windows shouldn't necessarily affect the sale price dramatically, for instance. E.

-- Eleanor Scott (, July 20, 2000.

Would not disagree with you on your answer,but try telling the court and judge that.will they err on the Lenders side even when evidence is shown,and im sure many reading this who have been there-will agree and have seen it in action. Do not think we are there yet.

Charles Twford

-- charles twford (, July 20, 2000.

I did write to Richard Colbey about this, to ask for the clarification apparently sought by some readers of this site, and he was kind enough to reply to me. He states that: 'There is no reason why Stott v Skipton should not help people in your position. I don't think the fact that it is a residential property makes any difference. Building societies are subject to diferent statutory regimes than banks, though it may be that that would not affect the position greatly either.' He adds, everyone should seek their own legal advice. Eleanor.

-- Eleanor Scott (, September 02, 2000.

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