Tenants Whose Landlords are in Mortgage Arrears

Sadly it is not uncommon for tenants to find that, although they have been paying the rent, the landlord has not been using the money to pay the mortgage…

Buy-to-Let Mortgages

Borrowers intending to rent out a property should obtain a buy-to-let mortgage. These often have slightly different conditions to ordinary mortgages. Some buy-to-let mortgages require the landlord to obtain written authority from the lender for each tenant.

If a landlord falls into arrears on their mortgage the lender can start repossession proceedings in the usual way. There is almost no requirement that tenants be given notice that the lender intends to repossess. Indeed the Data Protection Act means that the lender is prevented from discussing the mortgage with tenants.

The only warning that a tenant is bound to receive will be the “Notice to Occupier”. This is a letter that lenders must send to the property at least two weeks before a possession hearing. It will be addressed to “The Occupier” and give the names of the parties involved – i.e. the lender and the landlord –and the date, time and location of the possession hearing. It may also contain the landlord’s address. Unfortunately, this letter is not always opened as people often think that something addressed to “The Occupier” is just junk mail.

Repossession Hearings

The lender’s representative will probably refuse to discuss the mortgage with any tenants who come to court. Technically, as tenants are neither party to the mortgage nor the case, they are not allowed into the hearing. However, many judges will allow tenants to attend as they tend to be very sympathetic to people in this situation. Despite this, there is little a tenant can say to influence the outcome. The judge’s order is likely to depend solely on the landlord’s circumstances and whether any proposals are made by him to clear the arrears.

After Repossession

If a tenanted property is repossessed, and either the lender has given authority for a tenant or no specific authority was needed, the lender should appoint a receiver who will then collect rent from the tenants. However, this does not necessarily mean that the tenants will be allowed to stay in the property indefinitely. The lender is entitled to evict the tenant after giving as little as two months’ notice. The lender can then start proceedings to obtain a possession order, which is likely to give the tenants only 14 days to leave the property.

Mortgages which are not Buy-to-Let

If a landlord has an ordinary mortgage, any tenants in the property will be unauthorised unless the lender subsequently consents to the property being let. These tenants will have even less protection from repossession. If the property is repossessed the lender will not need a possession order to evict the tenants as they are not lawfully in the property. If the tenants refuse to leave, the lender may be able to evict them as trespassers, which can be done through the court in a matter of days. Any unauthorised tenant who learns that a possession order has been made should immediately start looking for alternative accommodation.

Tenants often ask why the lender will not accept payments from them directly. If a lender accepts rent payments from an unauthorised tenant, they may be deemed to have recognised the legitimacy of the tenancy. The lender may then be legally obliged to allow the tenant to stay, making it more difficult for them to sell the property to cover the mortgage debt.

Tenants Wishing to Buy the Property

Lenders cannot discuss the mortgage with the tenants, nor can they enter into an agreement to sell the property to them. Lenders have a duty to get the best price they can for the property and to do this it will have to be openly marketed. A tenant could buy the property at that stage but, by then, they will probably already have been evicted.

Tenancy Agreements Pre-dating the Mortgage

If a tenant was in the property before the mortgage was taken out, it is possible that their right to stay will supersede the right of the lender to repossess it. This is a complicated area of law and will probably depend on a number of factors. Tenants who find themselves in this situation should immediately take independent advice from one of the free advisory bodies specialising in housing matters.

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