Duty of care

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I see a lot of questions being asked or comments being made suggesting a lender has undersold a property in possession or did not sell it while the price was high.

While I am not defending the argument over "Duty of Care" I would advise the following, there have been many cases citing this argument.

For example:

Mrs x had her property repossessed in Jan 2000, it was valued at £85,000 and her redemption figure was £82,600. The lender, Kensington Mortgages held the property on the market for some 4 months trying to recoup their full figure.

During that time there were 2 offers of £77,500 and £79,950. Kensington believing they could get a bit more deicded to continue marketing the property for a further 3 months. During that time the original offers were withdrawn and the only offers on the table were a maximum of £75,950. They decided to sell at that resulting in a loss of some £7,000. Of course had they sold the property for £79,950 they would have reduced that loss to a negligable couple of thousand.

Mrs x then brought a case to court to argue that Kensington had a duty of care to sell the property at £79,950 and not £75,950.

Unfortunatley the lender is in a win win position all the time. The judge ruled that the lender does not have a duty to sell the property at a particular time or for a particular price if they believe they are acting in the best interests of all parties or as in this case they believe they can get a higher price to cover all thier costs.

Only if it can be proved that the lender is intentionally being obstructive or underhanded can a case such as this be won. And that happens in less than 1% of cases.

Again, I am not defending the system but its the way it is currently.

If a lender decides that they wanted to let your property out in a declining market and obtain an income while the market improves, they can do this also. Even if it means bigger losses at the end.

-- J Devine (anon@anon.co.uk), March 12, 2003


I think what people object to is blatant underselling which lenders have undoubtedly practised.

I know of one case for example where the lender put a property on the market for an asking price of 54,250 and sold it for 45,000. They rejected an offer of 48,000 the same day they put the property on the market, and then rejected two offers the following day of 50,000 and 52,000?? The lender refuses to say why they didn't accept the offer of 52,000. The borrower, as in the case of a great many people, cannot take the case to the Financial Ombudsman as more than 6 years have passed since the sale. The lender has 12 years or more to pursue a mortgage shortfall victim, the borrower only has six!! Furthermore, lenders have millions of pounds to obtain the best barristers, what has a MS victim got? Not surprising then the rate of successful cases. How many cases, I wonder, have people been able to actually bring and how many cases of underselling have there been. There has been an investigation into Estate Agent corruption, why not into Lender's??

You only have to read the Long Shadow Report by the CAB to see more examples of underselling.

Here is part of an extract from Moneymail:

Text only extract from Moneymail -26-12 -94 !!

The repossessed who are undersold BY ALLAN PIPER

With repossessions running at around 60,000 a year, the Halifax this month became the second major building society to admit that it sold repossessed homes well below their market value.

The admission shows how pressure on estate agents to maximise commissions can override official lenders’ policy of selling for the best possible price.

Another top society, the Woolwich, admitted seven weeks ago that it was aware of deliberate under-selling.

-- M Amos (idgroms@hotmail.com), March 13, 2003.

I disagree that a lender is entitled to let a property out in a bad market whilst waiting for it to improve. The relevant case is Palk v. Mortgage Services Funding Plc [1993] Ch 330, where the mortgagee wanted to do precisely that. The Court of Appeal decided that it was "oppressive" to expect the mortgagee to become an "unwilling risk- taker" where she was bound to lose out financially barring a miracle upturn. It held that a court had the power to order sale (s.91(2) Law of Property Act 1925) on the application of a mortgagee who wants to cut their losses, although a strong case would need to be made out for this.

-- Jenny Russell (jenny@andersonrussell.freeserve.co.uk), March 13, 2003.

For those of you scratching your heads ... I meant on the application of the MORTGAGOR - it was the home owner/ mortgage payer who got an order for sale in the Palk case. Sorry!

-- Jenny Russell (jenny@andersonrussell.freeserve.co.uk), March 13, 2003.

I was reffering generally to the ability of a lender to let a property in a poor market, the case of palk v mortgage services funding plc[1993] CH330 was in execeptional circumstances.

The rent payable would not have covered the interest and there was no real prospect of the property value rising in the short term so as to offset it.

Reffered to in this case was Lord templeman in the china & south sea bank matter in which he stated "A mortgagee can sit back and do nothing. He is not obliged to take steps and realise his security), it was however just and equitable to intervene and he did make an order under the LPA 1925.

A court will usually be reluctant to interfere with a decision made by a mortgagee not to realise the security immediately, particularily where realisation would result in a loss being sustained, it may do so if it is satisified there are execptional circumstances.

In the case raised by Mark, the mortgagee did nothing wrong by refusing the offers made. Having offers made so early on and selling too early could insinuate that the lender sold the property without giving due consideration to the sale price it may have achieved had it waited a number of weeks before considering sale.

-- J Devine (anon@anon.com), March 14, 2003.

Mr Devine,

I don't disagree with what you say about selling quickly i.e. that it could insinuate that the lender sold the property without giving due consideration to the sale price. If this was their only reason, why not say so? I don't know whether the lender did anything wrong as they refused to justify their actions. My real point was that the lender, in my opinion, should act in a responsible manner and justify why this reasonable offer was turned down. This I consider to be both fair and reasonable. In the UK Mortgage Code lenders are supposed to act fairly and reasonably in all their dealings with Mortgagors. The CML state that lenders are committed to fair and sympathetic treatment of people who have suffered repossession.

P.S. I've just checked, the property in question was eventually sold some 2 years after the offer of 52K, and the Mortgagor charged interest on those 2 years.

-- M Amos (idgroms@hotmail.com), March 14, 2003.

I absolutely agree, in fact I think that lenders when considering offers less than the asking price should where possible establish contact with the ex-borrower and give them the opportunity to have a say as to whether or not the sale should proceed at a particular price or wait a bit longer.

At the end of the day and as you have pointed out a quick sale with a £2k loss is better than a long drawn out sale process and a £10k loss not including all the extra costs built up in the interim, lenders know that fine well. But by giving the borrower a say it could prevent a worse situation and although it sounds silly I really think that agreeing a shortfall with a borrower is much better than the alternative wait and see what happens option!

My point as I stated was not to defend lenders, it was to point out that in a lot of ways lenders have the court on their side and there is damn all you can do it about it in 90% of cases.

Its a sad state of affairs though when a lender refuses to justify why they sold lower than they could have, they must surely want to get the best price for the property as well to lessen the need to pursue shortfalls, bloody idiotic!

-- Jim Devine (anon@anon.co.uk), March 14, 2003.

Just to add to Mark's note about the lender refusing offers of 52K, 50K and then taking only 45K (two years later!) I think it is worth noting that from the documents received from the lender thru the SARN process, it was noted on estate agent approval of sale forms that the bottom line the BS would accept was 53,500 when the offer of 52,000 came in (valuation at the time, noted on approval of sale form, was 48,000) - it also shows on the "approval of sale" that without the indemnity (MIG) - the break even value was 52,779 - therefore the BS (I believe) would have lost 779 pounds!! Sixteen days later, the BS dropped their max to 52,000 - of course, the buyer they turned down at 52K had then bought elsewhere (shame, as he only needed a 60% mortgage and was eager to buy the house as he was renting on same street - all info in their docs). It's interesting looking at the notations made on these forms which clearly show the agents were amazed that the early offers were turned down by the BS. I don't know how much of this would act in the mortgage shortfall victims' favour but it does show that it is very, very important to SARN the lender(s) and then go thru each document looking for any irregularities or discrepancies. It takes time but is definately interesting to say the least and could provide you with some ammunition. Good luck to all of you.

-- Jen P (jlzmail@adelphia.net), March 14, 2003.

Oh and one other thing - the lender has said, in writing, that the person who offered 52,000 (rejected) increased the offer to 53,500 but then pulled out and gave no reason. When asked for proof of the 53,500 offer and proof that they pulled out, the BS wrote they had no forms or documents, only a telephone note which, guess what, they could not produce! Even more interesting, the agents forms categorically state the buyer will not increase higher than 52,000 and make mention absolutely nowhere of an offer of 53,500 being made and the buyer subsequently pulling out. Makes you think the BS could be trying to cover themselves somehow??

-- Jen P (jlzmail@adelphia.net), March 14, 2003.


I think your suggestion about 'giving ex-borrowers the opportunity to have a say as to whether or not the sale should proceed at a particular price or wait a bit longer' is well made. It's something I'd like to push with the Treasury Minister. The CAB in their Long Shadow Report stated: 7.3 The CAB Service believes that reforms should require lenders to: • give borrowers in negative equity and facing possession action the right to sell the property themselves.

This would avoid crazy situations like the following (taken from the Long Shadow Report):

"A CAB in Somerset reported a couple who had sought to sell their home at a slight loss when they found themselves in financial difficulties in the early nineties. The building society refused them permission to sell and instead repossessed the property when the arrears rose to £1,000. It was subsequently sold at a much lower figure and now, six years later, the couple are being asked to repay a debt of £17,000. Had they been allowed to sell at the time, their debt would have been far less. Whilst they realised they would have had to make up the difference if they had sold at a loss, they were not aware that they were still liable after repossession."

And of course after six years the borrower can't counterclaim for selling at an undervalue, very clever.


-- M Amos (idgroms@hotmail.com), March 17, 2003.

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