Gavin Dowell of Glenisters assesses the current judicial approach to mortgage possession litigation as lenders continue to show forbearance
As the full impact of the credit crunch and the recession which followed became apparent during late 2008 and throughout 2009, one of the topics which emerged and rapidly developed was that of forbearance.
Amidst the hysteria which followed the collapse of Lehman Brothers in the US and the nationalisation of banks in the UK, there were fears that unprecedented numbers of properties could be taken into possession, leaving the same number of families homeless and imposing an intolerable burden on local authorities already desperately short of available housing.
With the Financial Services Authority’s Treating Customers Fairly requirements already in place, the Government then introduced the Mortgage Possession Action Pre Action Protocol, which created a requirement whereby lenders would have to prove they had considered all other options before seeking to repossess a property. Subsequent initiatives saw the introduction of the Mortgage Rescue Scheme and Homeowners Mortgage Support Scheme.
Very quickly, there appeared to be a realisation and a
This change in approach appeared to be driven at a macro level by a broad acceptance amongst lenders that their interests would best be served by a return to some level of economic stability, the prospects for which would not be enhanced by huge swathes of families being rendered homeless. At a micro level, there seemed to be a genuine desire to assist individuals and families whose change in circumstances were in many cases entirely beyond their control, coupled with the pragmatic understanding that there was little point in having a stock of repossessed properties which were worth less than the debt secured on those properties.
As the banking and finance industries were assailed from all sides there may also have been a sense that lenders were reaping what they had sown and were now paying the price for years of “irresponsible” lending; although, one could not help but notice, there was little or no mention of “irresponsible” borrowing.
Forbearance initiatives
No industry gathering was complete without a session devoted to forbearance initiatives.
That those initiatives were having a real impact was evident from a significant reduction in the number of first stage possession hearings and also from a significant increase in the number of cases being adjourned prior to first hearing with lenders showing a willingness to give borrowers an opportunity to prove that an arrangement could be adhered to without seeking the back up of a suspended possession order.
There will however always be cases where a lender’s concerns about an account are such that they choose to seek, and are entitled to seek, the protection of a possession order and indeed to subsequently enforce that order and take the property into possession.
It is in relation to the judicial approach to those cases that lenders may have ended 2009 feeling somewhat hard done by.
Judges discretion
There has always been an unspoken acknowledgement and indeed acceptance by lenders that Judges will push their discretion to its limit and perhaps beyond when dealing with possession cases. In recent months, however, lenders have been faced with increasing numbers of decisions which are not simply disappointing but which appear to be entirely outside of the court’s discretion.
It is no exaggeration to suggest that if a small proportion of those decisions which could legitimately be appealed were in fact appealed then the civil courts would struggle to cope. The fact that appeals are actually so infrequent owes as much to the fact that lenders are concerned to avoid acquiring a reputation for being difficult or aggressive as to more practical concerns about the delay and costs involved.
A short diversion into legal territory may assist at this point; let us remind ourselves that a mortgagee is entitled to possession as of right, “before the ink is dry on the mortgage unless by a term expressly or necessarily implied in the contract he has contracted himself out of that right”.
That being the case the entirety of the courts discretion is, as set out in Section 36 of the Administration of Justice Act 1970 as amended which permits the court to suspend a possession order or adjourn the claim for possession if (and only if) it is satisfied that the borrower is likely to repay any sums due within a reasonable time, excluding any accelerated payment.
Court decisions of concern to lenders
There are, however, large numbers of decisions in respect of which lenders could be forgiven for thinking that some broader, nebulous and entirely undefined discretion is being applied. The type of decision which lenders are entitled to be concerned about fall broadly into three categories:
1. Serial and inappropriate adjournments – there appears to be an increasing tendency for Judges to grant adjournments on what might be called a “wait and see” basis, where the borrower plainly does not satisfy the S36 test here and now but just might satisfy that test after one, two or more adjournments.
To take the Mortgage Rescue Scheme as an example, that scheme is simply a method by which a borrower may be able to satisfy the S36 test and “pay any sums due”. The mere mention of an application under that scheme does not provide the court with sufficient evidence to grant an adjournment, particularly given that the number of su
2. Multiple application cases – every lender will have a rump of cases where possession orders have been in place for years but where borrowers habitually apply to suspend the execution of the warrant and are given further opportunities in circumstances where, on any assessment, that borrowers credibility is exhausted. In such cases, as the arrears increase, there is an erosion of equity to the point where the lender may be facing a shortfall if and when the property is taken into possession.
3. “Defended” cases – if a borrower attends court and raises a concern about certain charges which have been debited to the account or claims to have made a payment which has not been credited, that is not a “defence” to a claim for possession but all too often such assertions are given the status of a formal or semi formal defence leading to delays and additional expense before the matter can be resolved.
Collective remedies
So what can lenders do, individually and collectively to remedy this situation?
On a collective basis, it seems that industry bodies such as the Council of Mortgage Lenders and the Building Societies Association have been determined to demonstrate the extent to which their members have embraced forbearance; whilst that is entirely laudable is it incumbent on those bodies to also seek to foster closer links with the judiciary and to try to raise and debate these issues? Specifically:-
Individual steps
Individually, and on a hearing by hearing basis, lenders can also take steps to give themselves the best opportunity of a reasonable outcome:
With interest rates expected to rise during 2010, the number of a
Gavin Dowell is a partner at Glenisters Solicitors
Date: 1st, February, 2010
ADVICE TO READERS
While this website is checked for accuracy, we are not liable for any incorrect information included. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions.
Enter your postcode here to find out how much your property is worth, based on Land Registry data.
RSS Feed
Delicious
Digg
reddit
Facebook
StumbleUpon