The High Court ruled that beneficial owners who enable a third party to misrepresent themselves as the sole owner to secure a mortgage are precluded from asserting an overriding interest against the lender.

Facts:

Mr. and Mrs. Ashrafi were the original beneficial owners of the property, but found themselves in a position where they were unable to secure a mortgage in their own names. To solve this problem, they enlisted the help of Mrs. Ashrafi’s brother, Mr. Shabir.

The arrangement involved Mr. Shabir representing himself to the lender, Belmont Green Finance Ltd., as the sole legal and beneficial owner of the property. In March 2019, the bank advanced a mortgage to Mr. Shabir on a “buy-to-let” basis. Under the strict terms of this mortgage, the property was intended to be an investment for rental income and, consequently, the contract prohibited occupation by the borrower or any “related persons,” which specifically included the borrower’s siblings. Despite these contractual prohibitions, the Ashrafis occupied the property as their family home.

Over time, the arrangement collapsed as mortgage arrears began to accumulate. A separate legal battle between the family members resulted in a 2022 judgement by Recorder Jones, which confirmed that Mr. Shabir was merely a “bare trustee” and that the Ashrafis held 100% of the beneficial interest. That Court ordered the Ashrafis to indemnify Mr. Shabir for the mortgage payments and gave them time to secure their own residential mortgage to pay off the bank. However, the Ashrafis were unable to refinance the property, partly because their attempt to raise funds by selling another flat was stalled by a sitting tenant.

By April 2024, the bank issued a claim for possession of the house and a money judgement against Mr. Shabir for the outstanding debt. The Ashrafis sought to block the possession order by claiming they had an “overriding interest” because they were in actual occupation and were the true owners. They further argued that the bank acted unconscionably by refusing to accept payments directly from them and by increasing the interest rates after the fixed-term period expired. The matter reached the High Court after a lower court granted the possession order.

Decision:

The High Court dismissed the appeal and upheld the possession order. The Court ruled that the Ashrafis could not claim beneficial ownership, and actual occupation took priority over the bank’s mortgage. Moreover, because they had intentionally allowed Mr. Shabir to hold himself out as the owner to secure the loan, the Brocklesby principle applied. This principle dictates that an owner who “arms” an agent to act as the owner cannot later assert their own rights against an innocent lender who relied on that misrepresentation.

The Ashrafis were denied the right to ask the Court for more time to pay off the arrears. The Court found they were not “mortgagors” within the meaning of Section 36 of the Administration of Justice Act (AJA) 1970. Since their interest was subordinate to the bank’s security, they had no “title” or legal right to possession that they could assert against the bank. Furthermore, even if they could pay the money, they could not remedy the occupational breach, as their very presence in the house violated the “no family occupation” clause of the buy-to-let mortgage.

Implications:

The case serves as a stark warning to families who use a relative to secure a mortgage they cannot obtain themselves. If the property is put in someone else’s name to obtain a loan, then the law treats that person as having been “armed” to represent themselves as the owner. As such, any actual subsequent occupation cannot override the bank’s security.

Under Section 36 of AJA 1970, not everyone with a financial interest in a house can ask the Court for more “time to pay,” and beneficiaries of a trust who are not parties to the mortgage contract cannot claim to be “mortgagors”. As a consequence, those beneficiaries cannot ask a judge to suspend a possession order while they try to clear arrears.