A claim was placed against mortgagor Cheval Bridging Finance by mortgagee Foreprime Properties in regards to a property in Stanford Hill, London. 

Damages were sought at a sum of £605,000 and a counter claim was also lodged. 

The claimant alleged that the lender had breached its duty of care to act in good faith in obtaining the best price for the property after a realisation had occurred. 

Rehka Chelvendra of Brightstone Law represented Cheval within the proceedings.

Foreprime Properties owned the premises and in early 2007, the estate agency decided it wanted to refurbish the property, so it applied for a £600,000 loan from Cheval. 

On the 31st of January the funds were advanced with a first charge secured on the property. 

The loan was on a three month term at a rate of 17.4 per cent per annum and 1.4 per month.

Repayment was scheduled for April 2007, however no monies were paid. 

It is understood that payments of approximately £125,000 and £117,000 were paid after the redemption date in April 2007. One payment in around December 2007 and the other in the following year. 

The lender obtained a repossession order in October 2007 but did not take the property until October 2008.

Cheval sold the property outside of auction for the sum of £605,000. 

The claimant alleged that the lender had breached its duty of care to act in good faith in obtaining the best price for the property. 

They believed that if it had been left in auction it would have gained a higher price.

In the judgement hearing at the Royal Courts of Justice on Friday the 20th of June, to determine whether the best price had been obtained, the judge referred to the initial valuations obtained on the property.

One valuation obtained at £1.2 million was deemed as excessive and also the quality of the property’s description given to the valuer was called into question. 

Mr J Baldwin QC said: “Both valuers were operating under a severe disadvantage and that is that neither of them had access to the interior of the property….” 

The judge stated that the valuers may have been misled so a higher market value could be obtained. They were also kept in the dark in relevance to a dangerous structure notice on the premises applied by a local authority. 

After working out the prospective value of the property based on the most trustworthy valuation and making reasonable reductions for repairs, the judge found a £600,000 valuation to be valid for the property. 

Also, when it came to the prospect of auction, the judge stated that there was a fear in regards to an interference with the sale. 

This included various rumours of a person in the community who was renowned for buying properties at auction at a high price and then delaying the sale, and causing other major complications. 

The judge then pondered suspicions that Foreprime was attempting to buy back the property at a good price at auction. 

Therefore, considering all the above facts Judge Baldwin concluded that Cheval’s decision to pull the property off auction to secure a £605,000 sale was a reasonable call to make. 

Consequently, Foreprime’s claim was dismissed.