This is a tricky area. Until mid-way through the last recession lenders nearly always refused to allow struggling borrowers to sell if there was negative equity - effectively forcing customers into repossession instead. Then a court ruled in certain circumstances that they should allow you to sell and pay off the remaining mortgage without security.
Your right to well the property for less than the value of the mortgage was first established in 1995 in the Barrett v Halifax Building Society case. Click here for a rough outline of Barrett v Halifax case but bear in mind that the law has moved on since 1995.
This is a tricky area of law but hopefully you will be able to use this explanation to help you work out your options.
If you think your lender is going to repossess you, you can apply to the County Court for the right to sell the property first. The law that allows you to do this is section 91 of the 1925 Law of Property Act.
If your lender has already applied for a warrant for possession of the property, you may still be able to try to sell the property first. If you think you can cover the entire mortgage by selling the property, you will need to apply to the court to halt the possession until you have tried to sell the property. You need to ask the court to use its powers under section 36 of the Administration of Justice Act, 1970. The reason you can apply for the court to use its section 36 powers even though your lender has already applied for a possession order is because doing so was made law by an Appeal Court precedent case called Cheltenham and Gloucester plc v Krausz [1997]1 ALL ER 21, CA. You will probably have to point this out to your solicitor - most of them don't know anything about this.
The only difference that the Krausz case made was allow you to ask the court to give you time to sell even if your lender has already applied for a possession order. It assumes that you can convince the court that you are likely to be able to recover the full amount owed from the sale. So getting valuations from a few estate agents is an important part of fighting repossession. It's an important part whether you keep the property, sell it or lose it to repossession. You must get several written valuations.
In some cases you may be able to sell the property yourself rather than let your lender repossess it - even if you do not think you will be able to pay off the mortgage debt from the sale. You can do this - sometimes - because of another Appeal Court case called Palk v Mortgage Services Funding plc [1993] Ch 330 CA. However, you will only be able to argue for the right to do this if you can show the court that you will be able to pay off the remaining debt from other source, eg a small loan or from cash.
There are some other things that affect whether the court will let you use section 91 of the Law of Property Act 1925. For example, you must be able to sell the property and pay off the mortgage in a reasonable period of time. That's not always easy when the market has tanked. Your lender might argue that you may be able to sell the property but not within a reasonable period of time.
There isn't much guidance about what is a reasonable period of time. But it looks as though it is one year if you can pay off the whole mortgage from the sale of the property. This was established by National and Provincial Building Society v Lloyd [1996] 1 All ER 630 CA.
Basically, there is some room for manoeuvre about how long you should have and how much of the mortgage you should be expected to be able to repay from the sale. If the sale is likely to generate much more cash than the mortgage debt, you are more likely to be given a year or longer to sell the property. If the sale is likely to leave some money owing then you are likely to be given a shorter time in which to sell it. You will also be expected to supply the court with details of your income and expenditure to support your detailed plan for how you will pay any remaining mortgage that you will owe after the sale.
There is another problem with all of this. Lenders don't necessarily need to get a repossession order (or warrant of possession) to sell your home. Unless the mortgage terms expressly - or implicitly - say that your lender needs to get a court order, then they don't. This was piece of law was established by another Appeal Court case - Ropaigealach v Barclays Bank plc The Times Law Reports, January 6, 1996, CA.
This is why there is no court record of so many voluntary repossessions. The lenders would have simply have taken possession and sold them.
The problem that this lack of a need for a possession order creates is that you may not be able to stop your lender taking possession before you sell the property under your section 91 Law of Property Act 1925. However, you may be able to apply to the court for an injunction to stop the lender from selling the property. This is an undefined area of law and you may just have to take your chance and try it but it is probably only worth bothering to try for an injunction if the sale of the property is likely to repay the full amount of the mortgage debt. This is just my opinion though and I am not a lawyer.
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