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IM on the Money - Winter 2012 Edition

Third Party Mortgage Payments

Following on from Roisin’s article above on Matrimonial Home Rights and particularly, the treatment of mortgage payments by the non owning spouse, we are often asked to advise on the acceptance of payments from parties other than the mortgagor and the risks inherent in acceptance.

Whilst it is a complex area and advice should always be sought, it is fair to say that where an overriding interest arises, or is claimed, as a result of actual occupation predating the mortgage, acceptance of mortgage payments from the party claiming such an interest, whether wittingly or not, is unlikely to influence the position. This is because the interest is a statutory one arising from occupation and not payment of the mortgage and/or rent.

The position in relation to tenants of borrowers is less clear cut and we discussed certain aspects of authorised and unauthorised tenancies in On The Money Issue one way back in January 2011.

However, an unregistered lease can be an overriding interest in itself, separate and distinct from a right arising from actual occupation (although any well advised party would claim both). Again, any interest being claimed in such a way will already have arisen at the time the loan was made and acceptance of instalment payments may not readily alter that. That said, it will certainly not assist the lender’s position if it could be shown the payments were being tendered as rent, particularly for a period predating the loan (and remember it is the payor’s prerogative as to how, and for what period, payments are to be allocated).

In relation to unauthorised tenancies generally the position was given some welcome certainty by the recent decision in Paratus AMC Limited v Persons Unknown. In this case, payments were accepted by the lender from a third party on the understanding that they were being made on behalf of the borrower. Come possession time, the occupier/payor claimed he had been occupying under a five year tenancy which, because his payments had been accepted, became binding on the lender despite the fact this was not a buy to let loan. In a welcome judgement on appeal, the Court found there was no evidence that the lender had been aware there was a tenancy and thus there was no acceptance of its terms or even existence, whether express or implied. The lender was not bound accordingly and was entitled to possession.

This is a common sense decision by the Court but could so easily have gone the other way had the tenant been able to make a case that the lender knew, or should have known, he was a tenant.

Our advice in these cases is that the risk free approach is never to accept payment from anyone other than the mortgagee. However, commercially, we appreciate the attraction that receipt of mortgage instalments where otherwise there would be none has. We are happy to advise on any given circumstances so please do contact us with any concerns you may have.

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