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Catharine Langley and Sofia Santos provide an article on Mortgage Possession Claims

Catharine Langley and Sofia Santos provide an article on Mortgage Possession Claims. This article will deal with the right to possession claim which can be brought under a residential mortgage, the pre-action protocol to be followed, defences and buy to let mortgages

Mortgage Possession Claims

  1. This article will deal with the right to possession claim which can be brought under a residential mortgage, the pre-action protocol to be followed, defences and buy to let mortgages.

  2. Residential mortgages means  a property that is used, or is intended to be used, as a dwelling.

  3. A mortgagee has right to possession, where a mortgagor has defaulted on repayments and/or where the mortgage term has expired.

Pre action protocol

  1. Residential mortgages are subject to the Pre Action Protocolset out under Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property. Paragraph 3.1 sets out the following aims of the pre action protocol:

  1. To ensure that a lender or home purchase plan provider (the Lender) and a borrower or home purchase plan customer (the Borrower) act fairly and reasonably with each other in resolving any matter concerning mortgage or home purchase plan arrears

  2. To encourage greater pre-action contact between the Lender and Borrower in order to seek agreement between the parties and, where agreement cannot be reached, to enable efficient use of the court’s time and resources

  3. To encourage Lenders to check who is in occupation of the property before issuing proceedings

  1. Under section 5 of this protocol the mortgage company is required to consider any proposal of repayment put forward, and to respond promptly. If the lender does not agree to such a proposal, written reasons must be given within 10 business days.

Postponing the start of a possession claim

  1. A possession claim ought to be postponed or adjourned, if the following can be evidenced:

  • A claim has been submitted to Department for Works and Pensions (‘DWP’) for Support for Mortgage Interest (SMI) or, if appropriate, Universal Credit (UC);

  • an insurer under a mortgage payment protection policy; or

  • a participating local authority for support under a Mortgage Rescue Scheme, or other means of homelessness prevention support provided by the local authority,

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

  • a reasonable expectation of eligibility for payment from the DWP or from an insurer or support from the local authority or welfare or charitable organisation such as the Veterans Welfare Scheme or Royal British Legion;

  • 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);

  • difficulty in respect of affordability or another specific personal or financial difficulty, and requires time to seek free independent debt advice, or has a confirmed appointment with a debt adviser and

  • a reasonable expectation, providing evidence where possible, of an improvement in their financial circumstances in the foreseeable future ( for example a new job or increased income from a lodger)

  1. As to subsection (a) above, this means an application has been submitted to assess the borrower’s financial situation and determine if SMI or UC are appropriate. SMI does not assist with arrears, and only covers the interest part of the mortgage. Therefore, other arrangements will have to be made in order to satisfy the outstanding balance of arrears. Thus, if there is evidence of a submitted application under a residential mortgage, a possession claim/hearing ought to be adjourned.

  2. If a lender is to rely on evidence of a new job, evidence will be required of the job, salary, and permanence. Where a lender has had a new job or an increase in salary for a sustained period of time, the court will question whether there is a surplus and, if there has not, questions will be raised about the affordability even with the new job or increase in salary.  Whilst evidence of suitable employment/income will not defend a possession claim, it can make strong grounds to adjourn or postpone a claim in order to permit time for action to remedy the arrears.

Defences

Time to pay order

  1. If a borrower is asking for more time to pay the arrears, (and provided the term is not expired)  pursuant to section 36 of the Administration of Justice Act 1970, the court will consider the amount of arrears/outstanding mortgage, divided by the remaining term on the mortgage. This figure is known as the Norgan minimum. That figure is then compared against how much the borrower can reasonably pay.

  1. In such circumstances the court must consider the following questions as set out in the case of Cheltenham and Gloucester Building Society v Norgan [1996] 1 All ER 449
    • How much can the borrower reasonably afford to pay, both now and in the future?
    • If the borrower has a temporary difficulty in meeting their obligations, how long is the difficulty likely to last?
    • What was the reason for the arrears which have accumulated?
    • How much remains of the original term?
    • What are relevant contractual terms, and what type of mortgage is it, ie when is the principal due to be repaid?
    • Is it a case where the court should exercise its discretion to disregard accelerated payment provisions (ie, section 8 of the Administration of Justice Act 1973)
    • Is it reasonable to expect the lender, in the circumstances of the particular case, to recoup the arrears of interest (1) over the whole period 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?
    • Are there any reasons affecting the security which should influence the length of the period for payment?

  1. If the Norgan minimum is in line with what the borrower puts forward in terms of repayment amounts, the court will likely grant a time order and/or adjourn the case on the new payment terms.

  1. If the lender falls back into arrears or fails to make the relevant payments the possession claim can be restored and legal action can resume.

Immediate sale

  1. The borrower may wish to sell the property privately and use the proceeds to pay off the mortgage. Abbey National Mortgage plc v Bernard 1995 71 P & CR 257 established that there would have to be evidence that a sale is imminent and the proceeds would satisfy the outstanding balance.

  1. The case of Bristol & West Building Society v Ellis 1996 29 HLR 282 sets down the factors to be considered::
    1. The adequacy of the property as security for the debt
    2. The effect of time on the security
    3. How long is needed to achieve the sale

  1. Where the property is already on the market it may be that a short period of suspension of only a few months would be reasonable.

  2. Where there is likely to be considerable delay in selling the property and/or its value is close to the total of the mortgage debt and arrears so that there is a risk the sum raised by the sale will be insufficient to repay the loan, and, as such, the security would be inadequate, immediate possession or only a short period of suspension may be reasonable.

  3. Where there has already been considerable delay in realising a sale of the property and/or the likely sale proceeds are unlikely to cover the mortgage debt and arrears, or there is simply insufficient evidence as to sale value, the normal order would be for immediate possession.
  4. Practitioners should take note of the case of Mortgage service Funding Plc v Steel 1996 72 P&CR D40 which emphasised the following:

‘Unless there is firm evidence that a particular sale is about to be completed, it is not the practice of the court to prevent the mortgagee from enforcing his remedy of obtaining possession and exercising his own power of sale over the property’. 

  1. This means, that if there is a potential purchaser at hand, the mortgagor can put the mortgagee in touch with the buyer to ensure the sale is not lost and the property can be bought from the mortgage provider/bank instead. Thus, the court may take the view that the mortgage company need not be without remedy any longer if they can facilitate the sale.

  2. The case of Aodhcon LLP v Bridgeco Ltd  [2014] All ER (D) 50 (Mar) emphasises the mortgage’s duty to obtain the best price for the sale of the  property. Any surplus remaining is to be paid to the borrower.

Buy to Let mortgages

  1. Buy to let mortgages are unregulated and, therefore, the pre action protocol does not apply to buy to let mortgages. The reasons to postpone are, therefore, restricted.

  2. It may be possible to change the type of mortgage from a buy to let to a residential mortgage. This will be at the discretion of the mortgage provider.

  3. The court can still permit a short adjournment to allow the mortgagee to arrange their finances in such a way to clear the arrears (Royal Trust Co of Canada v Markham 1975 3 AII ER 433).

Expired Term

  1. Where the term is expired in either a residential or buy to let, the court’s hands are tied. The court cannot prevent the possession order where there is no chance of repayment. The Norgan calculation does not apply to expired terms, as there is no remaining period on the mortgage for instalments to be made.

  2. The court has discretion under section 36 of the Administration of Justice Act 1970, to prolong the timeframe of obtaining the possession order, enabling the borrower to remain in possession for up to a maximum of 56 days if the court is satisfied there is exceptional hardship, for example, that the borrower is in poor health.
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