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HOUSING LAW PRACTITIONERS ASSOCIATION

Wednesday 13th March 2010

DEFENDING MORTGAGE POSSESSION PROCEEDINGS

CONTENTS OF THIS PAPER

PART A: OVERVIEW AND REVIEW

Recent developments;

Review of main types of mortgages;

Instalment mortgages - the court’s powers;

All monies charges;

Regulated agreements under CCA 1974;

Extortionate credit bargains & unfair relationships.

PART B: MORTGAGE PRE-ACTION PROTOCOL

The Protocol;

Sanctions for non-compliance;

Recent changes to CPR55 & the Protocol;

Mortgage Pre-action Checklist;

Future changes to the Protocol.

PART C: PRACTICE AND PROCEDURE IN THE COURTS

Requirements the lender must satisfy;

Housing Possession Duty Court Scheme;

What information an adviser should obtain;

Tips and Tricks.

PART D: OTHER AREAS OF INTEREST

By-passing s36 AJA - Horsham Properties & Ropaigealac h ;

Tenants of borrowers.

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PART A

OVERVIEW OF SOME RECENT DEVELOPMENTS

Over the past 18 months the government has introduced several new initiatives all aimed at keeping borrowers in their homes:

For possession claims issued on or after 19 November 2008:

Mortgage Pre-Action Protocol;

For possession claims issue on or after 1 October 2009:

Mortgage Pre-Action Checklist;

all occupiers and tenants to be notified of the proceedings and the hearing date;

local authority housing departments to be notified of the proceedings

Numerous government support and rescue schemes:

Support for Mortgage Interest (DWP pays mortgage interest for those on benefits);

Mortgage Rescue Scheme (vulnerable homeowners facing repossession: Government Mortgage to Rent or Shared Equity)

Homeowners Support Scheme (defers interest payments for homeowners who have suffered a temporary income shock)

REVIEW OF THE MAIN TYPES OF MORTGAGES OR CHARGES

You will see 3 main types of legal charge:

1. The bulk will be first legal charges repayable by instalments where purchase loans are secured on the property by way of mortgage. Some will be second or third charges, where loans have been taken out for the alteration, enlargement, repair or improvement of the property;

2. “All monies charges” securing, for example, bank overdrafts – which are repayable on demand; and

3. “Regulated agreements” within the meaning of the Consumer Credit Act 1974, which are secured by a legal charge on the property – usually the documentation makes it clear if the loan falls within the CCA 1974.

INSTALMENT MORTGAGES - THE COURT’S POWERS

Quick overview of the court’s powers

See Section 16 “Possession Proceedings” in the Civil Bench Book at: http://www.jsboard.co.uk/civil_law/cbb/index1.htm - this contains the advice given to district judges hearing mortgage possession claims.

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Defences to a mortgage possession claim

Full defences to mortgage possession claims are uncommon, but include

The Defendant did not sign the mortgage deed;

The Defendant signed only because of undue pressure;

Technical deficiencies in the mortgage deed/ unfair terms.

Note that the existence of a counterclaim for damages against a lender does not necessarily prevent a possession order being made, although it may in certain circumstances.

The court’s powers in most mortgage cases

The court has power under s.36 of The Administration of Justice Act 1970 (as amended by s.8 AJA 1973) to:

adjourn mortgage possession proceedings, or

stay or suspend execution of a judgment or possession order, or

postpone the date for delivery of possession

if the arrears are likely to be paid off within a “reasonable period”.

Mortgages to which these powers apply

The Court’s powers under s.36 apply equally to repayment mortgages and endowment mortgages, which are repayable by instalments, but not to “all monies’ charges,” which are repayable on demand (but the court may still adjourn for a short time if there is a reasonable prospect of the borrower paying off the entire debt over a reasonable period).

Court’s power to impose conditions

The court can impose such conditions with regard to payment by the borrower or the remedying of any default as it thinks fit. For example, the court could make a possession order suspended on terms that the Defendant pay the current monthly instalment (“CMI”), plus £50, £75 or £100 per month towards the arrears.

What is a reasonable period?

Prima facia this means the remaining term of the mortgage: see Cheltenham & Gloucester Building Society –v- Norgan [1996] 1 All ER 449, CA. See the dicta of

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Evans LJ. Considerations include:

(a) How much can the borrower reasonably afford to pay, both now and in the future?

(b) If the borrower has a temporary difficulty in meeting his obligations, how long is the difficulty likely to last?

(c) What was the reason for the arrears which have accumulated?

(d) How much remains of the original term?

(e) What are the relevant contractual terms, and what type of mortgage is it, i.e. when is the principal to be repaid?

(f) Is it a case where the court should exercise its power to disregard accelerated payment provisions (s.8 of the 1973 Act)?

(g) Is it reasonable to expect the lender, in the circumstances of the particular case, to recoup the arrears of interest (1) over the term of the original term (2) within a shorter period, or even (3) within a longer period, i.e. by extending the repayment period? Is it reasonable to expect the lender to capitalise the interest, or not?

(h) Are there any reasons affecting the security which should influence the length of period for payment?

“ALL MONIES’ CHARGES”

What is an “all monies’ charge”?

An “all monies’ charge” secures money loaned, for example on bank overdrafts, which are repayable on demand. Payment is not deferred by instalments as in a normal mortgage.

Note that personal loans are usually covered by the Consumer Credit Act, which would override the fact that they may be secured under an all monies charge. If, however, they are non-CCA but payable by instalments, then section 8 of the 1973 Act will apply.

How is the treatment of “all monies’ charges” different from instalment mortgages?

Where there is an all monies’ charge securing a bank overdraft the court has no power under s.36 AJA to postpone the date of delivery for possession: see AJA 1973 s.8 and Habib Bank v Tailor [1982] 3 All E R 561, CA. (though the court may still adjourn for a short time if there is a reasonable prospect of the borrower paying off the entire debt over a reasonable period: Birmingham Citizens Permanent Building Society v Caunt, [1962] Ch 883, ChD, or in the ordinary course of procedure, e.g. due to the temporary inability of a party to attend).

Note that where an all monies charge secures a number of different debts, for example an instalment mortgage, a non-CCA overdraft and a CCA loan, one has to look at the underlying type of lending to find the remedy against possession.

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Regardless of there being an all monies charge, s.8/Norgan still applies to the instalment mortgage because payment is deferred, s.36 applies to the overdraft and CCA time order applies to the CCA element.

“REGULATED AGREEMENTS” UNDER THE CONSUMER CREDIT ACT 1974

What are “regulated agreements”?

The Consumer Credit Act 1974 regulates most consumer credit with individuals (which is defined as including sole traders and partnerships of two or three partners). Until 6 April 2008, agreements were excluded from regulation if the amount of credit exceeded £25,000, (or £15,000 if the agreement is dated before 1st May 1998). However, this financial limit was removed by the Consumer Credit Act 2006. The following agreements are amongst those exempt from regulation under the CCA1974:

first charge mortgages regulated by the Financial Services Authority;

some second charge mortgages, depending upon the nature of the agreement and the identity of the lender;

business lending over £25,000, where the loan is wholly or predominantly for business purposes (business lending up to £25,000 remains regulated);

lending to high net worth individuals, with net income exceeding £150,000 or net assets exceeding £500,000 and supporting documentation.

Most main mortgages for the purchase of land are exempt agreements (i.e. not covered by the CCA), as are top-up loans for the alteration, enlargement, repair or improvement of a dwelling from the same lender – see Defending Possession Proceedings published by Legal Action for precise categories.

The Administration of Justice Acts do not apply to regulated consumer credit agreements. Instead the Consumer Credit Act 1974 allows the court to make a “time order” under s129. The primary purpose of a time order is to allow a debtor an extended period of time to repay a regulated agreement. In practice, a time order under s129 can extend time for payment by reducing the amount of instalments, their timing and the period over which they are repaid. Furthermore, where it is appropriate, a time order can be combined with an order under s136 to reduce or vary interest, or otherwise amend the agreement, and suspend a possession order under s 135. The issues of fairness and justice underlie the time order and related provisions, and orders can only be made where the court considers it ‘just’ to do so.

Where you think a time order is appropriate ask for an adjournment for the application to be made.

Some CCA secured loan agreements have been found to be unenforceable because they do not comply with the form and content provisions of the CCA. If dated before 6 April 2007 they could be irredeemably unenforceable and the lender would not be entitled to possession. If you think an agreement does not comply with the CCA you should seek an adjournment and obtain specialist advice.

EXTORTIONATE CREDIT BARGAINS & UNFAIR RELATIONSHIPS

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The ‘unfair relationship’ provisions of the Consumer Credit Act came into force for all non-FSA regulated agreements with individuals signed on or after 6/4/07. For agreements in force before that date, the provisions apply retrospectively from 6/4/08. They are far more wide-ranging than the extortionate credit provisions which they replace.

Only a court can make a finding that a relationship is ‘unfair’.

The basic rule is that the court can consider “all matters that it thinks relevant”. This includes matters that occurred before and after an agreement was made. In considering whether a relationship is unfair, the court can look at all aspects of the relationship between the lender and the borrower. This means that the court can look at related agreements such as the security provided by the debtor and agreements that have been modified, consolidated or re-financed by new agreements. It includes:

The terms of an agreement;

The way in which the creditor has exercised or enforced any of its rights under the agreement;

Anything else done, or not done, by or on behalf of the creditor;

The particular circumstances of the borrow and the nature of the relationship between the parties.

If a court finds a relationship unfair, it can:

Order the lender to repay money to the borrower;

Order the lender to do, or not do, anything;

Order the lender to reduce or discharge any amount payable by the borrower;

Order the lender to return any property to the borrower;

Amend the terms of the agreement e.g. reduce the interest rate.

It is likely to be some time before any binding case law emerges in relation to this legislation. Advisers may wish to seek specialist advice in relevant cases.

It may be that a complaint to the Financial Ombudsman Service under its new Consumer Credit jurisdiction is more appropriate and it is possible that a court will adjourn possession proceedings to allow this to take place. In Derbyshire Home Loans v Keaney (Bristol County Court, 8.1.2007) the court relied on CPR 26.4(2)(b) which states “ Where the court, of its own initiative, considers that such a stay would be appropriate, the court will direct that the proceedings ... be stayed for such specified period as it considers appropriate”. If the court will not allow an adjournment for a complaint to FOS, ask for an adjournment to enable a Defence to be filed.

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PART B

MORTGAGE PRE-ACTION PROTOCOL

“The Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property” applies to all mortgage and home purchase plan possession claims based on arrears issued on or after 19 November 2008.

Arrears to which the Protocol applies

The Protocol applies to arrears on:

first charge residential mortgages and home purchase plans regulated by the FSA under the Financial Services and Markets Act 2000;

second charge mortgages over residential property and other secured loans regulated under the CCA 1974 on residential property; and

unregulated residential mortgages.

Aim of Protocol

The aim of the Protocol is to encourage pre-action contact. The steps which the parties should take if borrowers fall into arrears are as follows.

Initial contact and provision of information to:

Provide regulatory information or NHAS booklet on mortgage arrears (5.1)

Provide information about the arrears (5.1)

Discuss circumstances/ proposals(5.2)

Advise early contact with local authority/ independent debt advice (5.3)

Consider reasonable requests to change date or method of payment (5.4)

Respond promptly and give reasons (5.5)

Give reasonable time to consider proposals (5.6)

Give notice of intention to start proceedings if borrower fails to remedy a breach of any agreement (5.7)

Postponing the start of proceedings, in the following circumstances:

Claim to DWP for Support for Mortgage Interest (6.1)

Claim to insurer under a mortgage protection policy (6.1)

- in both cases so long as there is a reasonable expectation of payment and an ability to pay any shortfall

Marketing the property (6.2)

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Genuine complaint to FSA (8.1)

Alternative dispute resolution

Pre-action discussion is to include the following options:

Extending the term - 7.1(1)

Changing the type of mortgage - 7.1 (2)

Deferring the payment of interest - 7.1 (3)

Capitalising the arrears - 7.1 (4)

SANCTIONS FOR NON-COMPLIANCE

There are no specific sanctions for non-compliance in the Protocol. However, paragraph 9 states that the parties should be able to explain the actions that they have taken to comply with the Protocol, if requested by the court.

The Practice Direction - Pre-Action Conduct

However, the Practice Direction – Pre-Action Conduct states:

the court may take into account the extent of a relevant pre-action protocol when giving directions for the management of claims and when making costs orders [4.1]

The court will expect the parties to have complied with any relevant pre-action protocol and may ask the parties to explain what steps were taken to comply prior to the start of the claim [4.2];

When deciding whether to impose sanctions, the court will look at the overall effect of non-compliance [4.5];

If, in the opinion of the court, there has been non-compliance, the sanctions which the court may impose include [4.6]:

staying proceedings until steps have been taken have been taken;

an order that the party at fault pays costs (including indemnity costs);

an order that the claimant is deprived of interest, and/or that interest is awarded at a lower rate; …

RECENT CHANGES TO CPR PART 55 & THE PROTOCOL

The 50th Update to the Civil Procedure Rules introduced changes to Part 55 CPR and PD55, which contain the rules relating to possession proceedings, and to the Pre Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in respect of Residential Property. The changes came into force on 1 October 2009. Rules were amended to ensure that:

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all occupiers including tenants of any mortgaged property subject to possession proceedings are notified of the proceedings and hearing date;

a new requirement has been introduced obliging lenders to notify local authorities when possession proceedings are commenced;

the steps, set out in the Mortgage Pre-Action Protocol, that a lender should take before starting a possession claim for mortgage arrears were expanded; and

the Protocol has also been amended to include a checklist for lenders to complete and file to show compliance with the Protocol; and

PD4 was amended as a consequence, to introduce a new form n123 “Mortgage Pre-Action Protocol Checklist” to the table of forms that are referred to and required by Rules or Practice Directions supplementing particular Parts of the CPR.

MORTGAGE PRE-ACTION PROTOCOL CHECKLIST

Use of the Checklist comes into effect on 1 October 2009 for all claims issued on or after that date in order to provide a uniform format for the provision of information to demonstrate compliance with the Protocol.

The Checklist (form N123) must be completed by all claimants (lenders) or their representatives making a possession claim. The claimant or their representative should be able to explain to the court the actions taken or not by the claimant, and the reason for issuing a possession claim.

Once the claimant and defendant (borrower) have been notified by the court of the date of the hearing, a Checklist must be completed indicating the action taken by the claimant within the previous three months to reach an agreement with the defendant, and comply with the Protocol.

The claimant must present two copies of the Checklist on the day of the hearing. No additional documents are necessary unless an issue arises.

The form must not go beyond two sides.

Information to be provided to the court

The form requires the following questions to be answered:

Is the possession claim within the scope of the Protocol?

Have you provided the defendant with the information/ notice in the Protocol at paragraphs:

5.1(1) - regulatory information sheet or the NHAS booklet on mortgage arrears;

5.1(2) - information concerning the amount of arrears; and

5.7 - 15 business days’ notice of an intention to start a possession claim, unless the borrower remedies a breach in any agreement.

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Do you have evidence that the defendant has made a claim for: Support for Mortgage Interest (SMI), or mortgage payment protection.

Is there an unresolved complaint by the defendant to the Financial Ombudsman Service that could justify postponing the possession claim?

Summarise the number and dates, in the three months prior to the date of this checklist, you attempted to discuss with the defendant ways of repaying the arrears.

In the three months prior to the date of this checklist have you rejected any proposals by the defendant to change the date or method of regular payments?

Have you rejected a proposal for repayment by the defendant in the three months prior to the date of this checklist?

Has the defendant indicated that the property will be or is being sold?

Signature of the Checklist

The person signing the Checklist must be authorised to do so and must sign a Statement of Truth. PD22 paragraph 3 sets out the people who may sign a statement of truth, in particular:

a person holding a senior position in the company or corporation [3.4], i.e. a director, the treasurer, secretary, chief executive, manager or other officer of the company or corporation. [3.5]. That person must state the office or position held.

By paragraph 3.11: “The word manager will be construed in the context of the phrase ‘a person holding a senior position’ ... The court will consider the size of the company and the size and nature of the claim. It would expect the manager signing the statement of truth to have personal knowledge of the content of the document or to be responsible for managing those who have that knowledge of the content. A small company may not have a manager, apart from the directors ... A large company will have many such managers. In a larger company … the statement may be signed by the manager of such a department if he or she is responsible for handling the claim or managing the staff handling it.”

Where a party is legally represented, the legal representative may sign the statement of truth on his behalf.

The individual who signs a statement of truth must print his full name clearly beneath his signature. [3.9] A legal representative who signs a statement of truth must sign in his own name and not that of his firm or employer. [3.10]

CPR 32.14(1) states: “Proceedings for contempt of court may be brought against a person if he makes, or causes to be made, a false statement in a document verified by a statement of truth without an honest belief in its truth.” The penalties for contempt include imprisonment and a fine.

FUTURE CHANGES TO THE PROTOCOL

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The Pre-Action Protocol for Possession Claims will be amended from 6 April 2010 (changes are in bold):

In paragraph 4.1:

“4.1 In this Protocol –

(1) ‘possession claim’ means a claim for the recovery of possession of property under Part 55 of the Civil Procedure Rules 1998 (“CPR”);

(2) ‘home purchase plan’ means a method of purchasing a property by way of a sale and lease arrangement that does not require the payment of interest;

(3) ‘bank holiday’ means a bank holiday under the Banking and Financial Dealings Act 1971; and

(4) ‘business day’ means any day except Saturday, Sunday, a bank holiday, Good Friday or Christmas day, and

(5) “Mortgage Rescue Scheme” means the shared equity and mortgage to rent scheme established either—

by the UK Government to help certain categories of vulnerable borrowers avoid repossession of their property in England, announced in September 2008 and opened in January 2009; or

by the Welsh Assembly Government to help certain categories of vulnerable borrowers avoid repossession of their property in Wales, first announced in June 2008.”

In paragraph 6.1:

“6.1 A lender should consider not starting a possession claim for mortgage arrears where the borrower can demonstrate to the lender that the borrower has –

(1) submitted a claim to –

(a) the Department for Works and Pensions (DWP) for Support for Mortgage Interest (SMI); or

(b) an insurer under a mortgage payment protection policy or a participating local authority for support under a Mortgage Rescue Scheme,

and has provided all the evidence required to process a claim;

(2) a reasonable expectation of eligibility for payment from the DWP or from the insurer or support from the local authority; and

(3) an ability to pay a mortgage instalment not covered by a claim to the DWP or the insurer in relation to a claim under paragraph 6.1(1)(a) or (b).”

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PART C

PRACTICE AND PROCEDURE IN THE COURTS

Legal and procedural requirements the lender must satisfy

Advisers acting for borrowers should check to see whether the mortgage lender has complied with the myriad formalities required by the CPR, Practice Directions and Protocols. Any failure could result in sanctions and/or delay. Below are set out some of the common areas of which advisers need to be aware.

Non-compliance with the Mortgage Pre-Action Protocol my result in sanctions, as set out above. In addition, the following faults are commonly found.

Has the claim been issued and served correctly?

Is the Claim Form in form N5?

Are the Particulars of Claim in form N120 giving the details set out in PD55 paragraph 2.5?

Has the claim been started in the court for the area in which the property is situated?

Correct address of the property?

Correct address for service for the Defendant?

Is the Schedule attached to the Particulars of Claim setting out all payments due and made for 2 years prior to issue, or from the date of the first default in payment, if this occurred less than 2 years before issue, and a running total of arrears? (But see below where claim issued through PCOL).

Problems with Possession Claims Online (PCOL)

Proceedings issued in the wrong court. This does not prevent the court in which the claim is issued making a possession order, but the case will have to be transferred to the correct court for enforcement;

Duplicate proceedings issued in the same court or different courts;

Claim Forms re-typed by HMCS containing errors as to the parties’ names and/or addresses and/or the address of the property;

Schedules of arrears input by Claimants but not attached to the Particulars of Claim, on the court file or served on the Defendant;

No copy of previous orders as drawn, including any possession order, on the court file.

Need for a schedule of arrears

If a claim is issued using PCOL, PD55B allows lenders to provide a summary of arrears with the Particulars of Claim, but sets out the requirements for the summary and for action which the Claimant must take in paragraphs 6.3, 6.3A, 6.3B and 6.3C.

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Common procedural defects

Any failure to comply with PD55 may justify an application to dismiss the possession claim, although often the court will adjourn to give the lender time to rectify the mistake. Common defects are:

Incomplete mortgage statements, especially:

One line arrears figure;

Schedules showing the last 3 payments due, not the last 3 payments made;

Schedules which do not add up;

Schedules with no running total;

Schedules which do not record all payments made;

A full statement has not been served on the Defendant and/ or is not exhibited to the Claimant’s witness statement.

The remedy for any failure is an adjournment for the Claimant to file and serve a full statement of account.

The hearing: what evidence will the judge want from the lender?

The judge hearing the possession claim will require the following by way of evidence.

Signed witness statement from Claimant

This should have been served on the Defendant and give evidence of:

up to date figures for arrears, balance owing, monthly instalment & last payment by the Defendant (but these can be updated at the hearing);

of having, within 5 days of receiving notification of the date of the hearing by the court, served a notice to “the tenant or the occupier” of the property and to the housing department of the local authority within which the property is located giving details of the claim and hearing (with copies of such notices) (CPR Part 55.10). This is a mandatory requirement and a failure to comply precisely should at least result in the adjournment of the case for 28 days;

If a Class F land charge, a notice under the Family Law Act 1996 or a notice or caution under the Matrimonial Homes Act has been registered against the owner/ property, evidence that notice of the claim and hearing has been given to the person who has registered that charge, notice or caution;

If the mortgage is a regulated consumer credit agreement, service of the default notice;

Compliance with PD55B paras.6.3A, 6.3B and 6.3C;

If the Claimant is not the registered charge holder on the land register, evidence of the transfer of the mortgage to the Claimant or evidence of the original lender’s change of name, as appropriate.

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The following documents:

To be handed to the judge:

Two copies of Form n123 “Mortgage Pre-Action Protocol Checklist”, properly completed and signed by an authorised person of sufficient seniority;

An official copy of the land register;

An official copy of the legal charge;

An official search certificate for notices required by s56 Family Law Act;

Copy of the default notice;

The mortgage terms and conditions;

The regulated consumer credit agreement.

THE HOUSING POSSESSION COURT DUTY SCHEME

Legal Services Commission specification: scope – “The service is available to any person (regardless of means) whose home is at immediate risk, because of possession proceedings.” The scheme may not cover buy-to-let properties or business premises.

“If a client has contacted you in advance of a hearing, this does not, of itself, prevent them from using this service. However, in these circumstances, you must not use the service as a substitute for Help at Court or Legal Representation if either is available.”

“The service covers only advocacy, in the relevant proceedings, on the day of the hearing and follow-up advice, explaining the outcome of the hearing and the options available, etc. You must send each client a letter setting out your advice … Any further work must be dealt with under normal arrangements, e.g. Legal Help if the client is financially eligible.”

The adviser must keep essential record of clients seen/ outcome of case and complete Proxy Means Test and Session Monitoring Forms.

Where the scheme is a Multi Agency Service, the provider may use Agency Advisers. Organisations which provide Agency Advisers and hold a Unified Contract or the Quality Assurance (“QA”) Standard must comply with that standard. If an organisation does not hold a Unified Contract or QA Standard, it must nonetheless comply with specified requirements of the SQM standard.

Fixed fee per client seen - £84 plus VAT (£79.50 plus VAT outside London) (no additional fee for travel & waiting, and the fee includes the cost of writing a letter of advice after the hearing).

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WHAT INFORMATION SHOULD THE DUTY ADVISER OBTAIN?

Most mortgage cases involve instalment mortgages.

It is usual to have a pre-printed checklist, which will be used to collect some or all of the following information:

Documents

Check documentary evidence - any defence (rare)?

- any procedural defects?

Property

Who lives in the property and will be affected by any possession order?

Is it the borrower’s home or buy-to-let?

What is the value of the property?

Mortgage/ arrears

What is the date & original amount of mortgage?

What is the remaining term of the mortgage?

Check the level of arrears - are they admitted? and

- what is the reason for them?

How much is required to discharge the mortgage now?

Borrower’s offer

What is the minimum Norgan order? Can the borrower improve on the minimum Norgan offer, to increase the attractiveness of any offer to the DJ?

What are the recent payments that have been made?

What changes have been made to demonstrate to the DJ that past problems are over and the borrower not only can pay current mortgage instalments, but a regular monthly sum towards the arrears.

What offer is being put forward?

Does the borrower have the ability to pay, either under their own resources if working, or with the benefit of income support mortgage interest, or with contributions from family and friends (has the borrower completed the Defence Form and Statement of Means?)

How much equity is there in the property and, in particular, is there proper security for the borrower if the court exercises its powers under s.36 AJA 1970 to adjourn, stay, suspend or postpone possession?

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Very often it is necessary to take instructions and tell the district judge about a troubled background resulting in arrears, to effectively contrast that with a hopefully improved and more hopeful position at the date of hearing – and to persuade the district judge to exercise his or her powers under s.36 AJA.

How can borrowers obtain help to pay arrears?

Mortgage payment protection policy – does one exist and has a claim been made? Late claims are still possible – refer to the Financial Ombudsman Service if insurer refuses to pay.

Contributions from other members of the family;

Support for Mortgage Interest (“SMI”). Borrowers may get help with mortgage interest payments as part of their benefits if they are a homeowner and are eligible for:

Income Support;

income-based Jobseeker’s Allowance;

income-related Employment and Support Allowance;

Pension Credit

SMI only covers mortgage interest payments for a mortgage or loan to buy or improve a borrower’s home.

The borrower should seek specialist advice about increasing income, minimising mortgage payments and scheduling other debts, from a debt adviser, for example from a Citizens Advice Bureau, the National Debtline or, in London, from Capitalise (see contact details below).

TIPS AND TRICKS

Conduct of hearings

There is no requirement for borrowers to give evidence by witness statements and all DJs should accept oral evidence at the hearing;

However, DJs often ask for documentary evidence of payments made, income from work, the value of the property (and hence the equity) and evidence of sale transactions (if the borrower is trying to sell before possession is granted).

Procedural defects to look out for

CPR Part 55, Rule 55.10 – within 5 days of receiving notification of the date of the hearing by the court, the Claimant must send a notice to the property addressed to “the tenant or the occupier” of the property and to the housing department of the local authority within which the property is located giving details of the claim and hearing (with copies of such notices). This is a mandatory requirement and a failure to comply precisely should at least result in the adjournment of the case for 28 days;

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Has the lender complied with CPR PD55, especially the additional mandatory requirements for particulars of claim in paragraph 2.5, which relates to “land subject to a mortgage?” Any failure to comply with PD55 may justify an application to dismiss the possession claim, although often the court will adjourn to give the lender time to rectify the mistake;

Is the lender’s evidence in order? Is the witness statement signed and up-to-date and does it prove the debt? Has the lender produced office copy entries and Family Law Act search?

Incomplete mortgage statements – especially those not recording payments made, which can be proved – grounds for an adjournment or dismissal?

Make use of any procedural deficiencies – especially inadequate notice to occupiers, regardless of whether or not any prejudice could be shown.

Practice of district judges

Some DJs take a very strict view of the 5-day rule in CPR 55.10 (above) and if the requisite notice has not been sent, they will grant an adjournment;

Some DJs claim not to be interested in “why” the arrears arose – but this is one of the considerations that the Court of Appeal in Norgan said are likely to be relevant in establishing the relevant period;

Prior agreements

Even if a borrower has previously agreed to an arrears repayment regime before the hearing, DJs will often interfere (and usually reduce) the monthly payments towards arrears, if the amounts agreed appear to be unrealistic;

However, sometimes there are advantages in borrowers having reached agreement with lenders before the hearing, when their income would have been unlikely to persuade a DJ to make a suspended order, but often this will only buy the borrower a short period of time.

Buying time

Borrower needs time to sell his property – the need for documentary evidence/ sales particulars/ solicitor’s letter. Rather than grant an adjournment to give time for a sale to go through, DJs may make an outright order postponed to a future date (e.g. in 2 months’ time), and suggest that borrowers can always apply to vary the order (to further postpone possession) if the sale progresses;

In a time of falling house prices and stagnant house sales, DJs are less impressed by small amounts of equity and are likely to want much greater equity, if they are to say that the lender’s security is not threatened by an adjournment or suspended order;

If the future is uncertain: make an offer to the DJ: possession order suspended on terms as a temporary measure and review in 6 to 12 month’s time;

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Changing contractual terms

The prevailing view is that courts cannot interfere with the contractual terms, i.e. the instalment payment dates, but DJs do alter these in some cases, if there are good reasons (e.g. borrower now paid on a different day of the month, or will tailor the court’s order to allow payments on a day of the month that is different from the mortgage deed;

Beware that in all cases, DJs tend to be less disposed to exercise their powers if the borrower does not physically live in the property (e.g. buy-to-let mortgages).

“All monies’ charge”

You may still be able to represent a borrower if their home is at risk as a result of possession proceedings for an all monies’ charge. Check for any defences or unfair terms.

Is the borrower likely to be able to repay the entire debt over a reasonable period? If so: apply for an adjournment;

Beware of attempts to oust the court’s powers under s36 AJA: e.g. a normal 25-year mortgage for the purchase of a house, but with a term buried in the small print that “this mortgage becomes due and repayable in full upon written demand by us.” Argue that the court still has powers under s36.

“Regulated agreement”

Check that it has been properly executed and is in the prescribed form, because if not it will be enforceable only by way of a court order. Improperly executed agreements dated before 6 April 2007 may be irredeemably unenforceable (see above).

The borrower is entitled to apply for a Time Order once a default notice has been served on him or her, and once proceedings have been started by the lender. Where you think that a time order may be appropriate - ask for an adjournment for an application to be made and for witness statement in support to be filed, with a skeleton argument.

Enforcing possession orders

Applications for a stay of execution of an eviction warrant – calculate payments that have fallen due since making of the possession order and payments actually made (whether contractual or under the terms of an SPO). DJs are often impressed by serious attempts to pay over time, even if they fall short.

In your calculations, discount the most recent payment due (which will tend to increase the apparent arrears) and/or emphasise change in circumstances.

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PART D

OTHER AREAS OF INTEREST

BY-PASSING SECTION 36 AJA

Horsham Properties Group Ltd v Clark, Beech & GMAC RFC Ltd

In Horsham Properties Group Ltd v (1) Clark (2) Beech and GMAC RFC Ltd (third party) and Secretary of State for Justice (intervener) [2008] EWHC 2327 (Ch), Legal Action. April 2009, page 27, the defendants obtained a ‘buy to let’ mortgage from GMAC RFC Ltd (GMAC). When they fell into arrears, GMAC appointed receivers under a power in the legal charge and under section 101 LPA 1925 (which contains powers, when the mortgage money has become due, to sell the mortgaged property or to appoint receivers).

The receivers sold the property to Coastal Estates, who transferred the property to the Claimant, which then issued possession proceedings claiming the defendants were “trespassers”. The concern was that as “trespassers” the defendants were unable to ask the court to exercise its powers to protect mortgage borrowers, as set out in section 36 AJA 1970 (as amended).

Ms Beech defended the possession claim but Briggs J granted possession to the Claimant. His findings included:

(1) by the express terms of the mortgage Ms Beech’s rights in relation to the property were all made subject to being overridden by a sale of the property by GMAC or by receivers appointed by GMAC at any time after a default in paying sums due under the mortgage;

(2) Section 101 LPA 1925 serves to implement rather than override the private bargain between mortgagor and mortgagee;

(3) Ms Beech’s interest in the mortgaged property was her share in the equity of redemption, which she lost when when the receivers contracted to sell to Coastal pursuant to their powers contained in the mortgage.

Ropaigealach v. Barclays Bank

In his decision, Briggs J made reference to and decided that he was bound by the decision of the Court of Appeal in Ropaigealach v. Barclays Bank [2000] 1 QB 263.

In that case the bank had sold the appellant’s property at auction, in exercise of the power of sale in the mortgage deed. The appeal raised a point of general importance as to the effect (if any) of section 36 AJA 1970, in a case where a mortgagee has taken possession of the mortgaged property by peaceable entry and without first obtaining an order of the court. The court reviewed history and purpose of section 36.

Lord Justice Chadwick concluded: “I find it impossible to be satisfied that Parliament must have intended, when enacting section 36 of the Act of 1970, that the mortgagee’s common law right to take possession by virtue of his estate should only be exercisable with the assistance of the court.” (Para 41)

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Response by the Council of Mortgage Lenders – CML voluntary statement.

“In respect of mortgages secured against owner occupied residential properties CML members will not seek to sell a mortgaged property when the borrower is in default without first obtaining a court order for possession. In addition CML members will not appoint a receiver to sell a residential property without first obtaining a court order for possession.”

Home Repossession (Protection) Bill

Introduced by Andrew Dismore MP as a private member’s bill on 3 February 2009.

To “Amend the Law of Property Act 1925 to require a mortgagee to obtain the court’s permission before exercising the power of sale, where the mortgaged land consists of or includes a dwelling-house; to make certain powers available to the court in actions by mortgagees for possession of a dwellinghouse; and for connected purposes.”

CML view was that “The bill is very unlikely to reach the statute book”

This Bill was on the Order Paper for a Second Reading debate on 16 October2009 but there was an Objection and eventually it was dropped by its sponsor, Mr Andrew Dismore.

Government Consultation

On 29 December 2009 rhe government published a Consultation Paper CP55/09 entitled: “Mortgages Power of Sale and Residential Property”.

The consultation paper seeks views on proposals to amend the law in relation to residential owner-occupier mortgages to ensure that such properties cannot be sold without either a court order or the homeowner’s consent.

This would mean that the borrower would always have the opportunity to access the protections offered by the court. The consultation will end on 28 March 2010.

TENANTS OF BORROWERS

When the lender takes possession, the tenants of the borrower are also likely to lose their homes. You will sometimes meet such tenants who seek advice.

The basic position is that the lender will not be bound by the tenancy and will be able to enforce the possession order against the tenants.

There are exceptions:

Tenancy was granted before the mortgage - unlikely for the original mortgage, but perhaps for a re-mortgage or if proceedings are brought in respect of a second mortgage;

Lender specifically agreed to the tenancy - but problem of evidence;

Lender has recognised the tenancy in some way (e.g. by demanding rent direct from tenants).

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Tenants may have a right of action against landlord/ borrower for breach of contract and/or breach of covenant of quiet enjoyment.

Tenants can apply to join in the mortgage possession proceedings. There is a risk of costs, but only very small one.

Defending Possession Proceedings [para 38.20] suggests tenants who join in can apply for damages against a landlord/ borrower within those proceedings. Presumably it would be a Part 20 claim. If an expedited hearing resulting in judgement can be obtained, or judgement in default obtained, it would be possible for the tenants to register a charging order against the title. Assuming there is sufficient equity, the judgment would be satisfied on the lender selling the property.

Mortgage Repossessions (Protection of Tenants Etc.) Bill

This is a Private Members' Bill (Ballot Bill) sponsored by Mr Brian Iddon MP. The main purpose of the Bill is to offer protection to tenants of rental properties whose landlord has both defaulted on his mortgage and not notified his lender that the property was being let (an 'unauthorised tenancy').

The key areas of the Bill are

gives courts power to postpone the delivery of a possession order, and to stay or suspend the execution of an existing possession order; and

ensures the tenant is given notice of a possession order before its execution.

The first reading of the Bill took place in the House of Lords on 1 March 2010. This was a formality - taking place without debate - but it signals the start of the Bill's journey through the Lords. A second reading, the main debate on the key principles of the Bill, is yet to be scheduled.

© Tim Powell, Powell Forster Solicitors 17th March 2010