The Ministry of Justice has issued a consultation on the proposal that a lender cannot exercise its power of sale in relation to a residential owner-occupier mortgage without either a court order or the borrower's consent.

This consultation paper follows on from the decision in Horsham Properties Group Ltd v Clark & Anor [2008] EWHC 2327 (Ch), which confirmed that a lender can sell a defaulting borrower's home without first obtaining a court order for possession.

The proposals are that:

  • a lender can exercise the power of sale over a residential owner-occupied property only where it has obtained a court order or the borrower's consent (so this will not apply to buy-to-let loans or other commercial loans).
  • the reforms will only apply to future mortgages.
  • other remedies available to the lender will not be affected.
  • legal certainty will be provided in the case of abandoned properties or where the borrower unilaterally hands in the keys by requiring the lender to obtain a court order before selling the property.

The Government considers that its proposal "will reinforce rather than change current practice". It believes that, in most cases, lenders already obtain an order for possession before selling a borrower's property. However, it is keen to close the legal loophole which lenders could use to repossess and sell an owner-occupied residential property without the approval of the borrower or the courts. This would remove the opportunity for the potential misuse of this loophole in the future.

For more information on the consultation proposals, see Mortgages: power of sale and residential property. Comments can be made on the proposals until 28 March 2010.