Facing Repossession; What You Need to Know?
17th February 2014
Mortgage contracts contain a clause that provides that should a borrower fail to make their scheduled payments, the lender can take possession of the property. Once they have possession, a sale will follow to repay the outstanding mortgage and costs. If there is a surplus, that will be paid to the borrower. If there is a deficit, which is unfortunately more often the case, the lender will seek to recover this sum against the borrower.
Before lenders can take possession of a property and sell it, they must first obtain a Court Order for possession. To do so, they must prove the following;
- a right to bring the claim,
- mortgage arrears,
- that they have notified all relevant people of the claim,
- compliance with the Mortgage Possession pre-action protocol.
The Mortgage Possession Pre-Action Protocol (MPAP)
A pre-action protocol is a guide as to what parties should do prior to starting proceedings. The aim is to avoid unnecessary proceedings. Proceedings should be a last resort when all other attempts to resolve the situation have failed. The lender should consider whether it would be reasonable;
- to extend the term of the mortgage,
- change the type of the mortgage,
- defer payment of interest due,
- capitalise the arrears, or
- make use of any Government forbearance initiatives in which they participate.
It is important to note two things about the protocol;
- It only applies to residential, rather than commercial, properties, and
- Failure to comply with the protocol will not prevent a lender from obtaining a possession order; they would be penalised for any failure by the Court refusing to allow them to recover their costs of the proceedings, normally automatically recoverable under the terms of the mortgage. Judges would most likely take a dim view of a lender who had failed to comply and that may have an influence on the decisions they make in the proceedings.
The protocol requires the exchange of information in such a way so as to make it easily understood; for example, if a lender is providing information to a borrower who may have difficulties in reading English, the lender should take reasonable steps to ensure the information is communicated in a way the borrower will understand.
Initially, when a borrower falls into arrears on their mortgage payments, the lender must provide the borrower with;
- the required regulatory information sheet or the National Homelessness Advice Service booklet on mortgage arrears; and
- the total amount of the arrears; and
- the total amount outstanding under the mortgage; and
- details of whether interest or charges will be added and, if so, details or an estimate of what interest and charges will be payable.
The lender must also advise the borrower to make early contact with the Housing Department of the local authority and refer them to sources of independent, free advice, such as the Citizen’s Advice Bureau (the CAB).
The lender and the borrower must take all reasonable steps to discuss with each other the cause of the arrears, the borrower’s financial circumstances and his proposals for the repayment of the arrears. A borrower should contact their lender as soon as there is a problem to inform them of the situation and see what assistance they can offer; the lender cannot be criticised for failing to help if the borrower did not make them aware of the problems they were facing.
The lender must consider any proposal from the borrower to either change the date or method of repayment, or indeed to clear the arrears. If the proposals are not acceptable, the lender must give reasons, in writing, as to why. If the lender submits a repayment proposal to the borrower, they must give them a reasonable period of time in which to consider the proposal.
If an agreement is reached but subsequently breached by the borrower, the lender must give the borrower 15 days notice to remedy the breach before proceedings will be commenced.
Finally, even if an agreement cannot be reached immediately, a lender must consider not starting a possession claim in the following circumstances;
- where the borrower can demonstrate that he has submitted a claim to the Department of Work and Pensions for Support for Mortgage interest;
- where the borrower can demonstrate that he has submitted a claim to an insurer under a mortgage payment protection policy;
- where the borrower can demonstrate that he has submitted a claim to a participating local authority for support under a Mortgage Rescue Scheme.
In addition to making the claim, the borrower should also be able to demonstrate that he has provided all evidence required to process the claim, a reasonable expectation of eligibility for payment and an ability to pay the part of the mortgage not covered by the DWP or the insurer.
Further, if the borrower can show that he has taken or will take reasonable steps to market the property for sale at an appropriate price, the lender should consider postponing proceedings. The borrower should provide the lender with details of the marketing attempts.
If the borrower has made a complaint to the Financial Ombudsman Service about a potential possession claim, the lender should consider postponing proceedings
If, despite the above situations occurring, the lender decides to commence proceedings, it must give the borrower of the reasons for this at least 5 business days before starting proceedings.
If no agreement can be reached between the parties, possession proceedings can be started. If the protocol has been followed, proceedings often only start if a borrower has not been actively trying to resolve the situation or where the borrower has insufficient resources.
The rules regarding possession claims are set out at Part 55 of the Civil Procedure Rules and the Practice Direction supplementing it.
The claim will often be for two things; an order for possession and a money judgment for the full amount outstanding under the mortgage.
The particulars of claim must be served with the claim form and must contain the following information;
- details of the land to which the claim relates
- whether it contains residential property
- the grounds on which possession is claimed
- full details of any mortgage
- full details of every person who, to the lender’s knowledge, is in possession of the property
- a written copy of the agreement on which the claim is based
- whether a charge or notice has been registered on the property, and, if so, evidence that the charge or notice holder have been notified of the proceedings
- the state of the mortgage account, including the amount of the advance, periodic payments, interest rate and the amount to redeem the mortgage including solicitors costs and administration charges.
- in schedule form, the dates when arrears arose, all amounts due, the dates and amounts of all payments and a running total of arrears. In general, this should cover the last two years, or, if sooner, from the date of the first default. If longer than two years, this should be stated and a full schedule provided in the witness statement in support of the claim.
- details of all payments to be made and claimed
- relevant information about the borrower, including benefit entitlement if known
- details of previous steps taken to recover the arrears.
If the claim is issued online, as most are, and the information set out at 9 above has been provided before the commencement of proceedings, the lender need only provide a summary in his particulars of claim to include;
- the amount of arrears at the date of the letter before action
- dates and amounts of the last three payments made by the borrower in cleared funds
- the arrears at the date of issue
If this is the approach taken, a full schedule must be served on the borrower not more than 7 days after the date of issue of the proceedings.
Once the claim is issued, a hearing date will be given. The borrower should attend. It is worth noting that, at any time, even after issue, it may be possible for the lender and the borrower to reach an agreement. If they do, the hearing may be adjourned or a suspended order, which will be discussed below, may be agreed.
Within 5 days of receiving notice of the hearing date, the lender must send a notice to the property address to the occupier, to the local authority housing department and to any registered proprietor of a registered charge over the property, which must state that a claim has started, the name and address of the parties and details of the hearing.
If no agreement is reached and a lender is still seeking an order for possession, a borrower should attend on the day of the hearing. A representative for the lender will also appear. They will be provided with up to date details as to the amount of arrears, the total amount left to pay under the mortgage and, if there have been any, recent payments.
You should try to speak with this person before the hearing. It may be possible to make a proposal to the lender for the repayment of arrears that may lead to an agreement before you go before a Judge. The representative may have instructions as to offers that would be acceptable to the lender, or they can contact the lender’s solicitors to put the proposal to them.
Also at Court, there may be a duty advisor, someone from the CAB, or a local authority or even from a local firm of solicitors. Provided your property is a residential property and not a commercial one, they may be able to provide you with advice and representation for free. The chance to discuss your case with the other side’s representative or a duty advisor, if present, is a good reason to ensure that you attend your hearing early.
If no agreement can be reached, you will have to go before a judge and argue your case to him.
The law on mortgage repossession
If a borrower is in arrears on their mortgage payments, the lender is entitled to a possession order, and a money judgment if this is sought. However, if the borrower can satisfy the Court that their mortgage can be paid and also clear their arrears within a reasonable period of time, the Court has a discretion not to make an outright possession order.
A reasonable period cannot be longer than the remaining term of the mortgage. Therefore, if your mortgage was 25 years taken out 2 years prior to the hearing, a reasonable period cannot be longer than 23 years. In reality, a judge may well wish to see the arrears cleared in a much shorter time.
The Court will typically make one of three orders on the hearing of a claim for possession;
- An outright order for possession. Usually a 28 day order, though this can be extended. This gives the borrower 28 days to vacate the property. If the borrower fails to vacate after 28 days, the lender is permitted to send in bailiffs to evict the borrower.
- A suspended possession order. This will again usually be a 28 possession order, however its enforcement will be suspended upon payment by the borrower of their current monthly instalment due under the mortgage plus something to clear the arrears. This may be a monthly sum or a large payment by a specific date. If a money judgment is also sought, it will also be suspended on the same terms. So long as the borrower maintains the payments, nothing happens. However, the order will have been made. Therefore, should the borrower default, the lender can send in bailiffs to take possession of the property without further orders from the Court
- Adjourned for a period of time. Typically, this will be the case where there is some issue which needs resolving, for example, the borrower claiming to have made a payment that is not showing on the lender’s records. However, the Court may also adjourn proceedings where a borrower is proposing to clear all of the arrears within a very short space of time, for example, through an imminent sale of the property. It is worth noting that to rely on such a promise, the Court will have to be satisfied the lump sum payment truly is imminent, for example, with contracts confirming a sale, or a letter confirming a large inheritance.
The judge will need to be satisfied of a borrower’s ability to make the payments they are proposing to make. For example, if arrears accrued because the borrower was unemployed for a period of time, but they are now employed, a letter from their new employer, confirming their employment, start date and salary should be produced.
Therefore, where a Court is satisfied that the proposed payments will clear the arrears within a reasonable period of time, and that the payments are likely to be maintained, it will make a suspended possession order. If not, it will make an outright possession order.
If the Court makes an outright possession order, it will be for the lender to seek to enforce this order following the expiry of the period ordered by the Court. They may agree not to enforce where payments are made following the making of the order, or if evidence is provided that the borrower’s situation has changed since the hearing. Therefore, whilst a borrower should be prepared to leave the property following the making of an order, they should not be put off trying to negotiate or discuss the matter with the lender further if their circumstances change.
If their circumstances do change, but a lender will not agree not to enforce their order, the borrower can make an application to the Court.
Application to suspend an eviction
The lender can request bailiffs enter the property and evict a borrower where there is an outright possession order that has expired or where there is a suspended order that has been breached by the borrower. They do not need a further Court order.
The borrower can, however, apply to the Court that enforcement of the order be stayed/suspended on terms. Such an application may be necessary/desirable in the following examples;
- At a possession hearing on 01 March, the borrower was unemployed and the mortgage, let alone a payment towards his arrears, was not sustainable. As such, the Court made a 28 day possession order. However, on 29 March, the borrower got a new job, with a better salary, that would mean he could pay his mortgage as well as something extra every month that would clear his arrears within 2 years, well within the remaining term of the mortgage. His lender was not prepared to agree to not enforce the order and had scheduled an eviction for 02 April. Therefore, the borrower could apply to the Court for an order that the eviction was suspended on terms that he pay his monthly instalment, plus the arrears contribution.
- At a possession hearing on 01 March, the borrower confirmed he could not pay his mortgage and was trying to sell his property. However, he had had no interest so the Court had made a 56 day possession order. On 15 April, he receives an offer for the property, but the lender will not consider delaying the enforcement of the order once the 56 days are up. As such, the borrower could apply to the Court with evidence on an imminent sale and seek enforcement of the order is stayed to allow the sale to go through.
These are just two examples. It is necessary to understand though that whilst a Court will often be minded to give a borrower a chance, the more times the matter comes back to Court due to a borrower’s failure to honour his promises to pay, the less likely it is the Court will exercise its discretion in favour of that borrower.