Palk v Mortgage Services Funding plc [1993] Ch 330

Key point

  • The court can order a sale under s91 LPA 1925 on application by mortgagor despite negative equity in property

Facts

  • Following default, the mortgagee M sought to take possession, to lease it and wait for a better time to sell since the market price was exceeded by then outstanding debt
  • The mortgagor P wished to sell immediately as leasing would increase the debt since the rent exceeded the interest per year

Held (High Court)

  • P’s claim succeeded; sale was ordered at P’s instance under s91 LPA 1925

Sir Donald Nicholls V-C

  • A substantial lender may be prepared to take risks that would be imprudent for a householder with limited financial resources, furthermore, any shortfall can be claimed against P; therefore, M is intent on speculating at P’s expense
  • If the rental would exceed or equal or at least approach the interest rate, it might have been reasonable for the company to postpone the sale and let the house for the time being
  • But in the current case, the rental to be credited to P falls significantly short of the interest rate
  • A court cannot decline the use of its power under s91(2) LPA 1925 if the consequence is manifest unfairness
  • In this case, a sale should be directed even though there it will not be sufficient to cover the debt, as it is unfair to compelled P to be the underwriter of the risk M takes