Lenders beware - mortgagees' rights take priority over occupiers

25 Feb 2015

Recent test cases in the Court of Appeal and Supreme Court - known as the North East Property Buyers (NEPB) Litigation but the principles will, of course, be of interest and relevance to lenders nationwide - have determined that a mortgagee's rights take priority over interests of occupiers. These cases involved a scheme whereby a person sold their home to nominee purchasers of NEPB.

The seller remained in occupation pursuant to NEPB's promise that they would be allowed to remain in the property after the sale. NEPB took out a buy-to-let mortgage to fund the purchase and the lender was not told of the promise made to the seller. The loan was made on the basis that the purchase was made with vacant possession. Exchange of contracts and completion of the transfer and mortgage all took place on the same day. The mortgage did not permit the right of occupation promised to the seller by NEPB. NEPB failed to keep up payments under the mortgage and the lender sought possession of the property. The Court decided that the acquisition of the property and the grant of the legal charge formed one indivisible transaction and it was not possible for rights of an occupier to arise between the acquisition and the charge so as to bind the lender. Consequently, the lenders’ rights took priority over the interests of the occupiers.

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