The Business Debt Advisor

Helpful Information - Mortgage Repossessions

Both freehold and leasehold owner occupation can, and frequently will, be subject to a mortgage. The mortgage deeds contain a variety of terms which usually states that when the occupier falls into arrears with the repayments that the lender has the right to evict the occupier and sell the property.

Demand for Arrears

Before legal proceedings are started, the lender will normally issue a formal demand for all the arrears to be paid. They are not obliged by law to do this, but in practice the Court will not look kindly upon a lender who has not given the occupier a chance to bring their arrears up to date.

The Pre-action Protocol introduced in November 2009 provides that lenders must demonstrate they have tried to help you avoid repossession.  The FSA has also issued guidelines to lenders on the type of steps they ought to consider to avoid repossession.

In summary the protocol states:

Your lender must:

• Provide you with details of what you owe along with any charges
• Consider any reasonable request with regards to changing the way you pay your mortgage
• Consider and respond to any offers of payment made
• Detail their reasons for declining your offer within ten working days. If you are unable to keep to an arrangement with your lender they notify you in writing of their intention to start court action.
• The lender cannot evict the occupier without an Order for possession from the County Court. The Court is not obliged to grant the possession immediately and has the power to grant a suspended order for possession on condition that the occupier continues to pay current instalments and a fixed amount off the arrears.

Suspended Possession Orders - Homeowners

The Court will only exercise this discretion if it is of the view that the arrears can be cleared in a reasonable time. (Administration of Justice Act 1970, s.36; Town & Country Building Society v Julien, 1991). But reasonable could cover the balance of the mortgage term. If it does not think this can be done, then the order will be final. This will usually be suspended for at least 28 days to give the occupier time to make alternative arrangements.

Reasonable Time to Clear the Arrears

There is no formal definition of reasonable time. Until recently, the courts had normally considered one year a reasonable time in which to clear the arrears (Cheltenham & Gloucester B.S v Grant, 1994). It has now been said that the Court should take as its starting point the full period of the mortgage.

Timescales & Help

Your lender will eventually apply to the courts for a repossession order should your arrears build up from month to month. Most High Street lenders are falling in to line with the governments’ stipulation that lenders should not take proceedings during the first 5 months of arrears.

Lenders must demonstrate that they have tried to discuss and agree some sort of arrangement when a borrower falls into arrears with their mortgage payments. This might include some form of repayment holiday until the borrower can make full payments again or it could include changing the type of mortgage. Extending the terms of repayments is also possible.

8 of the largest lenders have now signed up to the ‘defer payment’ initiative by the government which represents 70% of the mortgage market. This could apply to you if you have been made redundant or are facing a significant loss of income. This provides that lenders should allow you to defer a proportion of mortgage interest for up to two years and the Treasury will underwrite the risks. Also, two government-backed schemes have now been introduced to help homeowners avoid repossession.

Mortgage Rescue Scheme

This scheme can help in two ways depending on the circumstances. Help can be given by:

• Paying off a proportion of your mortgage & they then own a share of your equity
• They buy your property and you rent it back

To qualify for this scheme you must meet certain elements of criteria. Your household must earn less than £60,000 per year and the value of your home must be lower than certain levels in your area. There must also be a need for you to stay in your home; if it is cheaper for you to move elsewhere then this would not qualify. You must not own a second home and the value of your debts must not be greater than the value of your home.

Homeowner Mortgage Support Scheme

This scheme can help by lenders agreeing to reduce the borrowers’ monthly mortgage repayments or defer the payments in arrears & add them on to be paid at a later date.

To qualify for this scheme you must again meet certain elements of criteria. You must have suffered a loss of income which is not expected to be permanent and you must have discussed the pre-action protocol with regards to making some level of regular payment. Your mortgage must not exceed £400,000 and you must not be in receipt of SMI (Support for Mortgage Interest). You must not also own a second home.

The Next Step

All debt solutions should be very carefully considered; we will always provide you with the best advice to ensure you get a soft landing away from the burden of debt. Simply forward your details on our Contact Form and we will contact you. Alternatively ring us on our FREEPHONE ADVICE LINE 0800 085 1825 to have a full consultation with our specially trained advisors.

The Insolvency Service has produced a guide: In Debt - Dealing with your creditors, to support those who find themselves in financial difficulty during the recession.

Financial Information

All debt solutions should be very carefully considered. Fees will be charged if a solution is taken in order for us to set up and maintain your plan - all fees will be outlined during your consultation. For further information on fees, please see the FAQ section of the different solutions available. Retained payment may place you further into arrears. The Debt Advisor complies with the Consumer Credit Act and you have a right to a cooling off period of 7 days. It is likely that your ability to obtain further credit in the short term will be affected and this may also be the case over the medium to long term.