With many borrowers struggling to meet monthly mortgage payments, mortgage possession claims are prolific and well-understood. Less common but often no less important are claims to possession brought by receivers appointed by mortgagees. This article is concerned with the scenario where a homeowner mortgages his property, defaults on the mortgage, and instead of the lender bringing possession proceedings it appoints a receiver: can the receiver recover possession from the borrower?

The reason why a mortgagee may prefer to appoint a receiver rather than recover possession itself is clear. A mortgagee who enters into possession is bound to account to the mortgagor not just for the rent and profits actually received, but also for the sums which would have been received but for the mortgagee’s wilful default: Downsview Nominees Ltd v First City Corp Ltd [1993] A.C. 295, PC. In order to avoid the disadvantage associated with this, a mortgagee can appoint a receiver of the mortgaged property so that responsibility for the property lies with the receiver rather than the mortgagee, the receiver being put in control of the property in place of the mortgagor: Medforth v Blake [2000] Ch 86, CA.

A receiver appointed by a mortgagee is the agent of the mortgagor, and not the agent of the mortgagee. Consequently, proceedings brought against a third party (for example the mortgagor’s tenant for recovery of arrears of rent) will be brought in the name of the mortgagor acting by the receiver. Although the receiver is the agent of the mortgagor and not the mortgagee, “the peculiar incidents of the agency are significant.... the agency is one where the principal, the mortgagor, has no say in the appointment or identity of the receiver and is not entitled to give any instructions to the receiver or to dismiss the receiver.”: Silven Properties Ltd v Royal Bank of Scotland [2004] 1 WLR 997, CA. The mortgagor cannot interfere with the receiver’s management of the property, the primary duty of the receiver being to try to bring about a situation in which the secured debt is repaid. The receiver is not managing the property for the benefit of the mortgagor, but the security, the property of the mortgagee, for the benefit of the mortgagee. The mortgagee’s appointment of the receiver is primarily a device to protect itself.

Nevertheless it has been argued that a possession order cannot be obtained against a mortgagor by a receiver appointed by a mortgagee, where the receiver is the agent of the mortgagor. Effectively the claim would be a claim by a mortgagor against himself. A mortgagor who is a freehold owner of the property is the absolute owner and, so it was said, could not be evicted by an agent acting for the mortgagor. If the mortgagee wishes for the property to be repossessed, it must bring the proceedings as mortgagee, with the consequent protection offered to mortgagors under s.36 Administration of Justice Act 1970 as qualified by s.8 Administration of Justice Act 1973. Where a receiver has already been appointed by a mortgagee, the subsequent recovery of possession by the mortgagee will render the receiver the agent of the mortgagee thereafter, rather than the agent of the mortgagor: North American Trust Co v Consumer Gas Co (1997) 147 DLR (4th) 645 (Ontario Court of Appeal).

That argument has been rejected by the court in circumstances where receivers appointed by the mortgagee were found to be entitled to recover possession from the occupiers of the property including the owner of the freehold interest who was also the mortgagor. If the position were otherwise, the receiver would be unable to perform his duty of realising the security for the benefit of the mortgagee. Where the terms of the mortgage deed confer on the receiver the right to take possession, this includes a right to take possession against the mortgagor, and that express power can be relied upon in a claim to possession against the mortgagor. Arguably if a receiver is appointed by a mortgagee pursuant to the mortgagee’s statutory power under s.101 Law of Property Act 1925, the receiver is unable to maintain an action for possession against the mortgagor, the receiver’s powers being limited to recovery of the income of the mortgage property. However, as the Secured Lending Reform Bill 2010 (which proposed to curtail the role of receivers appointed under the Law of Property Act 1925 by removing their power to bring proceedings for possession) failed to complete its passage through Parliament it could be argued that the current law does permit a statutory-appointed receiver to recover possession from a mortgagor if this is a necessary prerequisite for recovering the income. Where possession is recovered, a statutory-appointed receiver may let the property if the power to do so has been delegated to him under s.99 Law of Property Act 1925.

By comparison, a court-appointed receiver is not treated as an agent of the mortgagor or the mortgagee, but is an officer of the court. He is appointed for the benefit of all the parties, to collect, get in, take charge of and manage the property in order to discharge the secured debt. An order appointing a receiver frequently carries with it a direction that the property must be delivered up to the receiver thereby preventing the mortgagor from challenging the receiver’s right to possession against him.

Given the fundamental purpose of the appointment of a receiver, viz. to enable the discharge of the secured debt, it would be a strange result if a borrower could frustrate that purpose by successfully resisting a receiver’s claim to possession against him. Where the mortgage deed expressly includes a right of the mortgagee to appoint a receiver for the purpose of inter alia recovering possession of the mortgaged property, reliance upon the express power should prove fatal to a borrower’s defence to a receiver’s claim to possession. Unless and until the law is changed to prevent statutory-appointed receivers from recovering possession, a borrower may also face a considerable hurdle in resisting such a receiver’s claim to possession.