Mortgages: limitation periods

Citation

Lee, R. and Waterson, G. (2001), "Mortgages: limitation periods", Property Management, Vol. 19 No. 1. https://doi.org/10.1108/pm.2001.11319aab.005

Mortgages: limitation periods

Mortgages: limitation periods

Rahman v. Sterling Credit Ltd (2000) The Times, 17 October, 2000

One of the powers given to the courts in order to protect the mortgagor or borrower, is the power which the court is given under s.139 of the Consumer Credit Act 1974, to reopen a mortgage agreement on the ground that the terms of the agreement are extortionate.

To quote from The Times law report, in the words of Mummery LJ:

Under section 137 of the 1974 Act a court which found a credit bargain extortionate might reopen it to do justice between the parties.

Under section 139(1)(b) the court might exercise that power at the instance of the debtor in any proceedings to which the debtor and creditor were parties … being proceedings to enforce the credit agreement, any security relating to it, or any linked transaction

In reopening the transaction the court might, for the purpose of relieving the debtor from payment of any sum in excess of that fairly due and reasonable direct accounts to be taken, set aside the whole of any part of any obligation imposed on the debtor by the credit bargain, require the creditor to repay the whole or part of any sum paid under the credit bargain and alter the terms of the credit agreement or any security instrument: see section 139(2)…

In the present case, the mortgagor Mr Rahman and his wife had entered into a mortgage agreement with a company called Greyhound Credit Ltd, on 5’October 1989, whereby they were to borrow £5,000 to be repaid over a period of 5 years by 60 monthly installments of £156.30, representing repayments of capital and interest, the latter at a rate of 32.1 per cent, and the loan being secured by a legal charge on the property concerned.

The borrowers fell into arrears with their repayments, and on 12 November 1990 a possession was made in favour of the mortgagee Greyhound. The borrowers, however, continued in possession of the property making payments of installments to the total in all of some £14,000. In 1995, the benefit of the mortgage had been assigned by Greyhound to Stirling. On 24 April 1998 Mr Rahman applied to the court to set aside the possession order and the original warrant for possession which was consequent upon it, and he also applied for leave to file a defence and counter-claim on the ground that the 1989 mortgage agreement was an extortionate credit bargain under s.139 of the 1974 Act. The application was refused by the District Judge, in part on the basis that a delay of eight years was fatal to the possibility of successfully raising such a claim.

On appeal to Judge Bradbury, the judge took a different view, holding that it was not appropriate for the issue now to be raised as a counter-claim since the matters in issue in the original proceedings had already long-since been decided; if the matter were now to be tried Mr Rahman would have to open an entirely fresh set of proceedings at which Stirling would be entitled to raise the defence that they were statute-barred by passage of the appropriate period of time, which seems to have been generally held, in a series of reported decisions by District Judges in earlier reported cases, to have been six years.

The Court of Appeal ruled in favour of the Rahmans on a number of grounds: since the mortgagees were still receiving payments and would have to make a further application to the court if they were to execute the possession order the issues in the original case had not finally been disposed of and the matter could still be reopened; the appropriate period of limitation for an agreement under seal was 12 years, and Mr Rahman's counter-claim was therefore not statute-barred; although the matter could be tried as a new and separate issue, it was convenient to allow it now to be tried as part of a counter-claim to the original proceedings. Game, set and match to the Rahmans, really.