Following mortgagee repossession, the mortgagor retains only an equity of redemption.
The High Court has considered this dismissing a claim for specific performance in Quick Property Sale Ltd v Solaja & Anor [2025] EWHC 1257 (Ch) (28 May 2025).
The defendants owned a property in Thames Ditton Surrey which was charged to Santander UK PLC. When they became unable to meet the mortgage repayments the bank brought possession proceedings and repossessed the property on 19 October 2022.
The defendants were contacted by a property services company, AX365, prior to execution of the warrant of possession and agreed to sell the property to the claimant, QPS, with an immediate exchange of contracts and release of funds to redeem the mortgage.
On 21 October 2022 the defendants signed a number of documents including a contract of sale. The contract provided that the defendants were the sellers and QPS the buyers of the property which was sold with vacant possession for £436,000 with a deposit of £231,000.
QPS released the deposit funds to solicitors but the bank refused to agree to redemption of the loan without proof of the source of funds and a loan agreement. It also refused to agree a sale to QPS because its policy following repossession was to sell the property on the open market or allow the mortgagor to redeem using funds loaned or gifted to them.
QPS served a notice to complete and in January 2023 brought proceedings seeking specific performance of the contract and damages. The property was valued, at all material times, at £465,000.
The court found that the parties agreed that the deposit should be used to redeem the mortgage which required a loan from the claimant to the defendants. Since the contract did not contain any such term it was void under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
If that was wrong the defendants were entitled to set aside the contract on the grounds that it was obtained by undue influence of which QPS had constructive notice. AX365’s principal approached the defendants when they were in a vulnerable position to persuade them to sell the property so that he could earn commission from the sale.
The contract was bound to end in failure. The bank would never accept the deposit to redeem the mortgage because the defendants did not beneficially own the funds. They had also agreed to give vacant possession when they did not have possession of the property and to transfer title when they were only entitled to sell their equity of redemption.
Louise Clark is a property law consultant