Pre-action Rules in Mortgage Possession Cases
New pre-action rules have been introduced to all mortgage possession claims relating to residential property. The rules, or pre-action protocol (the Protocol), came into effect on 19th November 2008. All mortgage possession claims started after that date, are subject to the Protocol.
The Purpose of the New Pre-Action RulesThe Protocol sets out what is expected of borrowers and lenders before a possession case is started. It states that it is generally in both parties’ interests for difficulties with mortgage payments to be resolved without going to court. The rules apply to both the lender and the borrower. The stated aim of the Protocol is to encourage lenders and borrowers to act fairly towards each other and to encourage more correspondence between the parties before a mortgage possession case starts.
Beyond the benefit to the parties, this might also result in mortgage cases being dealt with more effectively by the courts. The day of the possession hearing is often the first time that lender and borrower discuss the mortgage arrears, resulting in possession cases listed for five minutes taking considerably longer. With the number of possession claims increasing in recent years, the time taken up by each case is an important consideration.
The Protocol states that starting a possession case should be a last resort and that a case should not be started whilst ways of reducing the arrears are still being explored.
What is Expected of the Parties Before the Start of a Mortgage Possession CaseWhen a borrower falls into arrears the lender should provide them with appropriate mortgage arrears information as well as details of the amount and consequence – such as interest or penalty fees - of the arrears outstanding on the mortgage. The lender should also advise the borrower to contact their Local Authority housing department and tell the borrower where they can obtain debt advice.
Lenders and borrowers should make all reasonable efforts to discuss the arrears with each other, as well as any proposals to repay them. The parties should be prepared to tell a court how they have complied with the Protocol.
Obligations Placed on the Lender by the Pre-Action RulesThe following obligations are placed on the lender:
- To consider any reasonable request to change the payment date or other terms of the mortgage and, if the request is refused, to supply the borrower with a written explanation for the decision.
- To respond to any payment proposals promptly and, if the proposals are rejected, to provide a written explanation within 10 business days.
- Where the lender makes payment proposals, they should be set out in sufficient detail to ensure that the borrower understands their implications. The borrower should be given a reasonable time to consider the proposals.
- Where the borrower defaults on an agreement, the lender should give the borrower 15 business days’ notice in writing that a possession case will be started.
- has made a claim under a payment protection policy which is likely to be successful
- is, or will be, actively marketing the property at a reasonable price
- has made a complaint about the proposed possession case to the Financial Ombudsman.
What is Expected of Borrowers Before the Start of a Mortgage Possession CaseIf a lender postpones a possession claim due to a proposed sale, the borrower should provide the lender with information about the sale including: the sales particulars; the Home Information Pack; any offers received; and, details of the estate agent and conveyancing solicitor, who should be authorised to discuss the sale with the lender.
Judges and the Pre-Action RulesMuch of what is contained in the Protocol amounts to a statement of good practice rather than new law. However, the proof of the Protocol is in the hearing – and the way judges interpret it. Increasingly, some judges are adopting a stricter approach towards lenders and may be reluctant to grant a possession order if it is suggested that the lender has acted unfairly or unreasonably.
It is likely that a greater number of cases will be adjourned so that allegations of unfair behaviour can be investigated. Whilst the Protocol does not change the underlying law in relation to mortgage possession cases, it can only be in a borrower’s interests to ensure that they are seen to have done their best to comply with the Protocol – even if the lender appears to be disregarding its provisions.