Legal Mortgage Monthly Update co.uk February 2011

Item Civil Procedure Rules 1998 55th Update: 6th April 2011

Practice Direction 55B: Possession Claims online Pre-Action Protocol for possession claims based on mortgage or home purchase plan arrears in respect of residential property

Practice Direction 55B: Possession Claims online Paragraph 5.1(4) is amended to substitute “each party” for “the defendant”

Paragraph 5.1 will accordingly read:

“Claims which may be started using Possession Claims Online 5.1 A claim may be started online if – (1) it is brought under Section I of Part 55; (2) it includes a possession claim for residential property by – (a) a landlord against a tenant, solely on the ground of arrears of rent (but not a claim for forfeiture of a lease); or (b) a mortgagee against a mortgagor, solely on the ground of default in the payment of sums due under a mortgage, relating to land within the district of a specified court; (3) it does not include a claim for any other remedy except for payment of arrears of rent or money due under a mortgage, interest and costs; (4) each party has an address for service in England and Wales; and (5) the claimant is able to provide a postcode for the property.”

Pre-Action Protocol for possession claims based on mortgage or home purchase plan arrears in respect of residential property

1. In the table of contents, for “Alternative dispute resolution” substitute “Further matters to consider before starting a possession claim”. 2. In paragraph 5.1, in the first place that it occurs, for “should” substitute “must”. 3. In paragraph 5.2, in the first place that it occurs, for “should” substitute “must”. 4. In paragraph 5.3, in the first place that it occurs, for “should” substitute “must”. 5. In paragraph 5.4, in the three places that it occurs, for “should” substitute “must”. 6. In paragraph 5.5, in the first place that it occurs, for “should” substitute “must”. 7. In paragraph 5.6, in the two places that it occurs, for “should” substitute “must”. 8. In paragraph 6.1, for “should” substitute “must”. 9. In paragraph 6.2, for “should” substitute “must”. 10. In paragraph 6.3, for “Home Information Pack” substitute “Energy Performance Certificate (EPC) or proof that an EPC has been commissioned”. 11. In paragraph 6.4, for “should” substitute “must”. 12. For paragraph 7.1 and the heading to that paragraph substitute—

“Further matters to consider before starting a possession claim Starting a possession claim should normally be a last resort and such a claim must not normally be started unless all other reasonable attempts to resolve the position have failed. The parties should consider whether, given the individual circumstances of the borrower and the form of the agreement, it is reasonable and appropriate to do one or more of the following—

(1) extend the term of the mortgage; (2) change the type of mortgage; (3) defer payment of interest due under the mortgage; (4) capitalise the arrears; or (5) make use of any Government forbearance initiatives in which the lender chooses to participate.”.

13. In paragraph 8.1, for “should” substitute “must”. 14. In paragraph 8.2, for “should” substitute “must”. 15. In paragraph 9.1—

(1) for “should” substitute “must”; and (2) omit “, if requested by the court,”.

Comment The most significant amendments to the Pre-Action Protocol are those that now require the parties to take certain steps, rather than merely recommend they should do so. Thus,

 Where the borrower falls into arrears the lender must provide the borrower with the required regulatory information sheet or the NHAS booklet, and information concerning the amount of arrears  The parties must take all reasonable steps to discuss the cause of the arrears and the borrower’s financial circumstances etc  The lender must advise the borrower to make early contact with the Local Authority Housing Department  The lender must consider a reasonable request from the borrower to change the date of regular payment or the method by which payment is made  The lender must respond promptly to any proposal for payment by the borrower  If the lender submits a proposal for payment the borrower must be given a reasonable period of time in which to consider such proposals. The lender must set out the proposal in sufficient detail to enable the borrower to understand the implications of the proposal  A lender must consider not starting a possession claim for mortgage arrears where the borrower can demonstrate to the lender that the borrower has submitted a claim for Support for Mortgage Interest, under a mortgage payment protection policy, or a mortgage rescue scheme etc  If a borrower can demonstrate that reasonable steps have been or will be taken to market the property at an appropriate price in accordance with reasonable professional advice, the lender must consider postponing starting a possession claim. The borrower must continue to take all reasonable steps actively to market the property where the lender has agreed to postpone starting a possession claim  Where the lender decides not to postpone the start of a possession claim it must inform the borrower of the reasons for this decision at least 5 business days before starting proceedings  The lender must consider whether to postpone the start of a possession claim where the borrower has made a genuine complaint to the Financial Ombudsman Service (FOS) about the potential possession claim  Where a lender does not intend to await the decision of the FOS it must give notice to the borrower with reasons that it intends to start a possession claim at least 5 business days before doing so.  Parties must be able to explain the actions that they have taken to comply with this protocol.

In addition, para 7(1) (alternative dispute resolution) is amended to emphasise that possession is a last resort and that a claim must not be started unless all other reasonable attempts to resolve the position have failed, and this now includes considering Government forbearance initiatives.

This is good news for borrowers. It isn’t such good news for lenders.

It is probably fair to say that in practice, the Pre-Action Protocol has had limited impact. The courts have struggled to apply the numerous “should” requirements in a consistent and meaningful way, and anecdotal evidence suggests that lenders have complied with the Protocol in a ‘tick-box’ manner. No more. District Judges should now ensure that the mandatory obligations have been met. They will have to give the N123 Checklist more than cursory attention, and should be more willing to impose sanctions for non-compliance (see the Practice Direction on Pre-Action Conduct, section 4, compliance). Practitioners should be alert to the new obligations.