Cheltenham & Gloucester BS v Krausz [1997] 1 WLR 1558

Court of Appeal

Basic Facts: K faced mortgage arrears of £83,000. The lender (C) obtained a possession order, which was stayed several times. K found a purchaser for £65,000, but C resisted the sale, believing the property was worth £90,000. K sought an order of sale under s.91(2).

Issue for the Court: In cases of negative equity, when will the court allow a sale?

Held: The court ruled that a mortgagee cannot seek possession merely to sell the property if the proceeds of sale would not cover the debt, to avoid an inequitable outcome for the mortgagor.

 Phillips LJ:

• Order of Sale: The court can order a sale even if the sale proceeds will not cover the full debt. A mortgagor can resist possession to attempt to secure a better price.

• Suspension of Possession: While s.36 does not permit suspension of possession simply to facilitate a sale under s.91(2) if the proceeds will not cover the debt, the court may allow a short suspension in certain circumstances if it is reasonable and other funds are available or if there is another good reason.