A new Scottish Bill is set to bring about big changes to lenders’ repossession procedures in
By now most lenders will be aware of the Scottish Government’s Bill to increase protection available to homeowners who are in arrears with their mortgage payments and possibly facing action from their lender which may ultimately result in repossession. The Bill has been prepared in response to extensive lobbying on the part of consumer groups and the current economic climate where it was initially estimated by the Council of Mortgage Lenders that 75,000 homeowners in the
The Scottish Government established a Repossession Sub Group directed to look specifically at changes which could be made in
What does the Bill say and change?
The most significant and anticipated change is that which will require all repossession actions to call in court. This is a big change for Scotland as previously cases were only called in court if the action was defended - perhaps say on the grounds of fraud - or if the debtor lodged a Minute under the Mortgage Rights (Scotland) Act 2001 (‘’the 2001 Act’’) seeking suspension of the creditor’s rights. Such a Minute is a written application by the borrower wherein a suspension of the creditors’ rights is sought, normally for a fixed period. The Minute also sets out the borrower’s present circumstances and the grounds on which a suspension is sought.
In
For debtors, this is clearly good news as it means that even for those who want to bury their heads, cases will call without them having to do anything. For lenders, it is bringing Scottish procedures in line with
There are a number of issues surrounding this change. Not least of those is how the courts will cope. There has recently been publicity in the Scottish press about the planned closure of some courts. Many of the Scottish Courts are already under huge pressure and there is understandable concern among lenders that hearing dates will not be fixed quickly resulting in increasing arrears. Furthermore, in Lord Gill’s recently published Review of the Civil Courts system in
Generally, consumer groups are welcoming this proposal asserting that it gives borrowers much better protection against losing their homes. Lenders dispute that and refer to the provisions in the 2001 Act which they say gives as much protection as is needed. There is some force in that view particularly given that a number of the Bill’s provisions virtually mirror the provisions of the 2001 Act especially in relation to the factors the court can take into account in deciding whether to grant a repossession order, including the nature and reasons for default, the borrower’s ability to pay within a reasonable period and any action taken by the creditor to assist the borrower.
The new procedures will not apply to cases where the borrower has either abandoned the property or is agreeable to repossession.
A perhaps less noteworthy change, though important, relates to the type of action creditors will now have to raise. Formerly, actions were raised under the Ordinary Procedure which is clunky and requires quite detailed written pleadings setting out facts and the law which applies. Repossession actions were often further complicated if borrowers lodged a Minute under the 2001 Act as there could be confusion as to whether the normal defended action procedure should apply or a separate procedure relating to the Minute. Going forward, creditors will use the summary application procedure which is quicker and involves only brief pleadings. This should help offset the likely increased costs resulting from all cases having to be heard in court.
Lay Representative - a good or bad thing?
As anticipated, lay representation will now be allowed and this has probably caused most anxiety among lenders I’ve spoken to given concerns over quality and independence. The Bill specifies that only ‘approved’ lay representatives will be able to appear. Approval needs to be by a person or body prescribed by Scottish ministers - there’s no more detail on this yet but the fact that approval will have to be obtained by those seeking to represent debtors should give some comfort to lenders for now.
The devil will of course be in the detail on the regulations which will come from the Government but it is hoped that the regulations will set out a full accreditation process so that lenders and borrowers can be satisfied that those who will represent borrowers are truly independent, recognise their obligations to the court and act with the objective best interests of borrowers at the fore.
Pre-action protocol in form if not in name?
There was discussion in the Repossession Sub Group as to whether to introduce an equivalent to the English pre-action protocol. The protocol was introduced in
The Bill requires that a creditor, before raising action, must comply with specified obligations. These obligations require the creditor to provide the debtor with clear information about the terms of the Standard Security including the nature of the default and the amount due under the Security including any arrears and any charges levied for late payment or redemption.
The creditor has to take reasonable steps to try and agree proposals for future payments with the borrower. The creditor also has to provide the borrower with information about sources of advice and assistance in relation to management of debt. This is a potential issue for creditors in
The creditor will not be able to take action if the debtor is able to pay the arrears within a ‘reasonable’ length of time. ‘Reasonable’ is not defined, which is a potential problem, as unless and until there is clear court guidance on this (which will take time) different sheriffs and lenders will obviously have different views on what is reasonable and what is not.
Certainly, we are currently finding that sheriffs are being very sympathetic to borrowers - in two actions in cases involving unsecured and Consumer Credit Act regulated loans in the last few weeks, time to pay orders have been granted which will result in payment taking 48 and 18 years! It may well be that we won’t ever get clear guidance from the Courts such that each case will turn on its own facts and circumstances - a highly unsatisfactory position for lenders who will be unable to predict outcomes and therefore make any coherent plans on how they will treat defaulting borrowers.
I think readers will agree that the above provisions sound very similar to the English pre-action protocol principles. However, one advantage of introducing a protocol might be that it would give greater guidance and certainty as to what a lender’s and a borrower’s obligations will be under the new Act.
Factors to be taken into account by the court
Once in court, the Bill sets out the matters the court is to have regard to when determining a repossession action. These broadly mirror the factors listed in the 2001 Act and include considering the nature of and reasons for the default, the ability of the debtor to pay in a reasonable time (again note the reference to reasonable), any action taken by the creditor to assist the debtor to fulfil his obligations, the ability of the debtor to find alternative accommodation and whether the debtor is already participating in an approved debt repayment programme.
The Bill also gives rights to persons other than the debtor to become involved in any action raised by a creditor. These persons are essentially spouses, civil partners and cohabitees living as husband and wife or civil partners.
Rights of tenants
Separately, there is an ongoing consultation by the Scottish Government into the rights of tenants in repossession cases and it is widely expected that tenants will be given extended protection in the event their landlord is not maintaining mortgage payments in respect of the rented property. This is also expected to be the position in
Biggest changes in law for many years
Finally, the Bill reinstates a provision enabling a debtor to agree to shortening the two-month notice period which applies to a ’calling up notice’. In
Where the borrower accepts he cannot pay and wants to consent to repossession, he can now endorse the notice to that effect meaning the lender can proceed to repossess and avoid court action. This provision was previously abolished when the 2001 Act came into force. This will allow debtors and creditors, who agree to repossession taking place, to short circuit matters considerably and avoid court action being raised - a welcome return to the position which formerly operated and allowed borrowers to hand over keys and surrender possession and lenders to get on with selling the property at the earliest stage.
The Bill seeks to bring about the biggest changes to this area of law for many years and lenders need to be aware of what is on the horizon so they can start looking now at how their practices and procedures may have to change.
Given the fact lenders have, for some time now, had to comply with Chapter 13 of the Mortgage Conduct of Business Rules, it is likely that the majority of lenders will already, in effect, be complying with the proposed new provisions in terms of what lenders have to satisfy the court about on raising proceedings. For Scottish cases, this means that lenders, through their lawyers, will also have to be ready to fully document all contact with their borrowers and review their guidelines for agreeing payments in arrears cases to ensure, as best they can, that these will meet the ‘reasonable’ criteria.
We are in a period of significant change and lenders will be looking to their legal advisers to keep them fully appraised as changes come into force so that lenders are ready to meet the challenges posed.
Denise Loney is director of litigation,
Date: 12th, January, 2010
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