The Duty Of A Mortgagee To Sell At Fair Price

The mortgagee has, first of all, a duty to act in good faith and not for an improper purpose. Breach of duty of good faith involves something more than negligence or even gross negligence: it requires some dishonesty, or improper motive, some element of bad faith to be established. Reckless indifference to the rights or interest of others (mortgagor) or shutting one’s eye deliberately to the consequences of one’s action may suffice to establish dishonesty or bad faith.
In addition to the duty of good faith, the mortgagee also has another duty. A mortgagee in exercising his power of sale does owe a duty to take reasonable precautions to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty the facts must be looked at broadly, and he will not be in default unless he is plainly on the wrong side of the line . In the case of Medforth v Blake [2000] Ch 86 102 it was stated that “the expression “true market value” has been used interchangeably with “proper price” and with “the best price obtainable”.

In case of Michael Miller [2004] 2 EGLR 151 it was stated that “a prudent mortgagee will take advice, including, where appropriate, valuation advice, from a duly qualified agent”. The case of Silven Properties Ltd v RBS plc further states that “the property must be fairly and properly exposed in the market. That generally means that a marketing strategy should be formulated, sales particulars should be produced and appropriately advertised”. Furthermore, the case of R (on the application of Glatt) v Sinclair [2011] EWCA Civ 1317 provides that “appropriate consideration should be given, in light of offers received, as to whether the market is raising or falling and whether it has been marketed at the correct price.

In the case of Aodhcon LLP v Bridgeco [2014] EWHC 535 (Ch) the court laid down some important applicable principles in relation to the duty of a mortgagee in possession on a sale, and the relevant ones to the matter at hand include:
-The mortgagee has an equitable duty to take reasonable care to sell for the best price obtainable at the date of exchange of contracts.
-The property should be properly advertised, i.e. sufficient frequently and widely to reach the appropriate pool of prospective purchasers.
-The mortgagee is entitled to decide the length of the marketing time subject to the requirement that it is properly advertised.
-The mortgagee will not have breached his duty unless he is “plainly on the wrong side of the line”.

The court made it very clear that the duty of a mortgagee when exercising the power of sale to take reasonable care to achieve the best price reasonably obtainable is not the same thing as a duty to obtain the best price reasonably obtainable. There was a link between the breach of the duty and the duty to act in good faith. A breach of the duty to act in good faith would be a breach of the duty to exercise reasonable care to sell the property for the best price reasonably obtainable.

Therefore, pertaining to the selling of the property at less than the prescribed valuation would be a breach of an equitable right, if the mortgagee had not taken reasonable steps to obtain the best possible price and advertised the property appropriately.