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New Rules on Repossession for Tenants of Mortgaged Properties

By: Louise Smith, barrister - Updated: 15 Oct 2012 | comments*Discuss
Mortgage Repossession Tenants

The plight of some tenants of mortgaged properties has long been one of the saddest aspects of mortgage repossession law. It is not unusual for tenants to be fully up-to-date with their rental payments to a landlord who has been paying nothing to their mortgage lender. Some borrowers put tenants into a property long after a possession order has been made and when a bailiff's appointment is already looming on the horizon.

A tenant in this situation might have no idea that there is a problem until the bailiff's notice of appointment comes through the door - or when the bailiff turns up to repossess the property.

Mortgage Repossession Hearings and Tenants

Even if a tenant was aware that a repossession case was due to be heard their position could not be taken into account unless the mortgage is buy-to-let or the mortgage company had specifically given their consent for the tenancy. Therefore tenants of mortgaged properties could face imminent eviction through no fault of their own.

Mortgage repossession law gave almost no protection for unauthorised tenants and judges could do nothing to help them. However, two significant changes go some way to increasing the protection for tenants threatened with eviction because of their landlord's mortgage arrears.

Notice to Tenants of Mortgage Repossession Cases

The first measure came into effect in October 2009. Until then the only warning that a tenant might receive of a repossession case was a notice sent by the lender’s solicitors addressed to "The Occupier". Not only would many tenants fail to open a letter addressed to "The Occupier", but the notice only had to be sent to the property two weeks before the hearing. Now this notification must be addressed to "The Tenant or Occupier" and be sent within 5 days of the mortgage lender receiving notification of the hearing date. This means that tenants should now receive about four to six weeks' notice of the repossession hearing.

The Mortgage Repossession (Protection of Tenants etc) Act 2010

More fundamental changes to mortgage repossession law are contained in the Mortgage Repossession (Protection of Tenants etc) Act 2010. This law is due to come into force in October 2010.

The Act introduces new powers for judges hearing a mortgage repossession case where the property is occupied by unauthorised tenants. If the tenant makes an application to the judge hearing the case, the possession order may be delayed for up to two months. A judge may also suspend a warrant of eviction in respect of a mortgaged property for up to two months if an unauthorised tenant asks him to do so.

A judge cannot use this power to delay the eviction if it was already exercised in favour of the same tenant at the original possession hearing. However, if the property is occupied by different unauthorised tenants at the time of the eviction the judge may delay the eviction by a further two months by using the power contained in this Act.

In deciding whether or not to exercise this power the judge should consider the circumstances and behaviour of the particular tenant making the application. The implication is that judges will be more likely to use this power to help a tenant who is up-to-date with their rent and / or otherwise generally in compliance with the terms of their tenancy agreement.

The judge could also make an order that requires the tenant to make payments directly to the mortgage lender whilst they remain in the property. Traditionally mortgage lenders have refused to accept such payments from unauthorised tenants because of the danger that this would lead to a type of tenancy coming into effect between the mortgage lender and the tenants. The new Act specifically says that such payments will not create a binding tenancy agreement between the mortgage lender and the tenants.

Requirement for Mortgage Lenders to Give Notice of Evictions

The Mortgage Repossession (Protection of Tenants) Act also introduces a new requirement for mortgage lenders to send a warning notice to a property before enforcing a possession order. Previously there was no legal requirement for the mortgage lender to send any additional notice to the property once they had obtained their possession order - although many lenders did send a notice as a matter of good practice. When the new law comes into effect there will be a concurrent provision stipulating the number of days' warning which a mortgage lender must give before they may enforce a possession order.

Whilst these changes may offer meagre comfort to decent tenants who find themselves in this sad situation, they do represent a fairly fundamental change to the existing position in mortgage repossession law.

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