When a mortgage is provided the borrower will agree to the lenders terms and conditions. One of the most important terms would be the schedule of repayment. The lender will always want to protect its return.
Although what happens when it all goes wrong, for example the borrower of a commercial building has defaulted on payments or the terms and conditions have been breached.
The Law of Property Act 1925 provides statutory protection in the form of being able to appoint a receiver.Â It is the receiverÂs duty to be the agent of the mortgagor. The mortgagor is solely responsible for the receiverÂs acts or defaults unless the mortgage deed provides otherwise. Â (Law of Property Act 1925 Section 109(2))
Section 109 of the 1925 Act provides for the appointment, powers, remuneration and the duties of the receiver.Â A central part of the Act is the fact that a receiver can only be appointed once the mortgagee has become entitled to exercise the power of sale.
It was held in the case of Yorkshire Bank PLC v Hall 1998 that both the receiver and mortgager are both obliged to obtain the best price reasonably obtainable.
It is the receiverÂs job to collect the money that is owed each month. With this money they have the obligation to pay rent, taxes and other out goings such as fire insurance. Their responsibility goes so far that they must cover the costs relating to necessary or proper repairs as directed by the mortgagee.
In the more recent case of Silven Properties Ltd v Royal Bank of Scotland it was held that the receiver must act reasonably in the circumstances.
The receiver is entitled to retain the money that is left over after paying the bills and other outgoings. However only up to 5% of the total gross amount, they can keep more but the receiver but this would require an order from the court.