The High Court has ruled that a mortgagee (the mortgage lender) can instruct receivers to sell a property if the mortgagor (the borrower) is in arrears without first obtaining a court order.
The Court supported the decision of the mortgagee, GMAC-RFC, to sell the property after the borrowers fell into arrears on their buy-to-let mortgage. The Court ruled that the mortgagee's power to effect sale in this way does not breach the European Convention of Human Rights. It took the view that the mortgagee's power to sell the property without recourse to the Court implements the private bargain between the mortgagor and mortgagee. The new owner was therefore entitled to take possession of the property.
The ruling diminishes the effectiveness of the Pre-action Protocol for Mortgage Possession cases which is only triggered if the mortgagee applies to court.
However, it should be noted that GMAC-RFC has stated that whilst it widely uses receivers in buy-to-let loans it would not have called in receivers if the arrears related to a residential home loan.
Jack Straw has ordered an investigation into this loophole. It remains to be seen how the results of the investigation into mortgage repossessions will impact on Order for Sale Actions.