Housing Law Practitioners Association s1

HOUSING LAW PRACTITIONERS ASSOCIATION Wednesday 16th July 2008

DEFENDING MORTGAGE POSSESSION PROCEEDINGS AS DUTY ADVISER

1. BACKGROUND TO MORTGAGE POSSESSION PROCEEDINGS

Current statistics

Recent increase in mortgage possession claims. See: http://www.justice.gov.uk/publications/mortgatelandlordpossession.htm

How can I obtain a quick overview of the court’s powers?

Read Section 16 “Possession Proceedings” in the Civil Bench Book at: http://www.jsboard.co.uk/civil_law/cbb/index1.htm - this contains the advice given to district judges hearing mortgage possession claims.

Where can I obtain more detailed advice about mortgage possession proceedings?

Read the relevant chapters of “Defending Possession Proceedings” published by Legal Action Group.

What are the defences to a mortgage possession claim?

 The Defendant did not sign the mortgage deed;

 The Defendant signed only because of undue pressure;

 Technical deficiencies in the mortgage deed/ unfair terms.

All of these defences are uncommon. If a serious point arises, seek an adjournment and/or directions for the filing of a defence.

NB: the existence of a counterclaim for damages against a lender does not necessarily prevent a possession order being made, although it may in certain circumstances: see Defending Possession Proceedings.

Is there a protocol for mortgage lenders to follow?

There is a proposed protocol for possession proceedings by mortgage lenders but, currently, the protocol is only at the consultation stage. If the protocol comes into force - has the lender complied? 2

What are the court’s powers?

There are two statutory regimes:

(i) Under the Administration of Justice Acts 1970 and 1973 (most mortgages); and

(ii) Under the Consumer Credit Act 1974 (regulated agreements secured by a legal charge and not exceeding £25,000) (see also amendments made by the Consumer Credit Act 2006)

What kind of mortgages or charges will I come across?

As duty adviser you will see 3 main types of legal charge:

1. The bulk will be first legal charges repayable by instalments where purchase loans are secured on the property by way of mortgage. Some will be second or third charges, where loans have been taken out for the alteration, enlargement, repair or improvement of the property;

2. “ All monies charges” securing, for example, bank overdrafts – which are repayable on demand; and

3. “Regulated agreements” within the meaning of the Consumer Credit Act 1974, which are secured by a legal charge on the property and do not exceed £25,000 – usually the documentation makes it clear if the loan falls within the CCA 1974.

2. INSTALMENT MORTGAGES

What are the court’s powers in most mortgage cases?

The court has power under s.36 of The Administration of Justice Act 1970 (as amended by s.8 AJA 1973) to adjourn mortgage possession proceedings, or to stay or suspend execution of a judgment or possession order, or to postpone the date for delivery of possession – if the arrears are likely to be paid off within a “reasonable period”.

To which mortgages does this power apply?

The Court’s powers under s.36 apply equally to repayment mortgages and endowment mortgages, which are repayable by instalments, but not to “all monies’ charges,” which are repayable on demand - but see below.

Can the court impose conditions?

Yes, the court can impose such conditions with regard to payment by the borrower or the remedying of any default as the court thinks fit. For example, the court could make a possession order suspended on terms that the 3

Defendant pay the current monthly instalment (“CMI”), plus £50, £75 or £100 per month towards the arrears.

What is a reasonable period?

Prima facia this means the remaining term of the mortgage: see Cheltenham & Gloucester Building Society –v- Norgan [1996] 1 All E R 449, CA.

How do you calculate the minimum order that a court might make?

To calculate the minimum Norgan order:

(i) Work out the number of months remaining on the mortgage (i.e. the number of years left x 12);

(ii) Then divide the current arrears by the number of months remaining.

The resulting figure is the minimum amount a borrower would have to pay to clear the arrears off over the remaining term of the mortgage, assuming that the current monthly instalments were also being paid.

NB: despite Norgan, district judges often wish to see arrears paid off in a shorter period (5 or 10 years), so that the minimum monthly payment will be higher.

What are the considerations in establishing the “reasonable period”?

See the dicta of Evans LJ in Norgan. Considerations include:

(a) How much can the borrower reasonably afford to pay, both now and in the future?

(b) If the borrower has a temporary difficulty in meeting his obligations, how long is the difficulty likely to last?

(c) What was the reason for the arrears which have accumulated?

(d) How much remains of the original term?

(e) What are the relevant contractual terms, and what type of mortgage is it, i.e. when is the principal to be repaid?

(f) Is it a case where the court should exercise its power to disregard accelerated payment provisions (s.8 of the 1973 Act)?

(g) Is it reasonable to expect the lender, in the circumstances of the particular case, to recoup the arrears of interest (1) over the term of the original term (2) within a shorter period, or even (3) within a longer period, i.e. by extending the repayment period? Is it reasonable to expect the lender to capitalise the interest, or not? 4

(h) Are there any reasons affecting the security which should influence the length of period for payment?

Money judgments

Lenders sometimes seek a money judgment for the outstanding balance of the mortgage, as well as a possession order. Lenders are entitled to such a judgment if they ask (Cheltenham & Gloucester Building Society –v- Grattidge [1993] 25 HLR 454, CA), although, if the possession order is suspended, it is normal to suspend any money judgment on the same terms.

It is normal to order “costs to be added to security” or to say nothing about costs and to leave the lender to rely upon the terms of the mortgage deed. The court may only order “costs not to be added to security” if there has been unreasonable conduct by the lender.

3. “ALL MONIES’ CHARGES”

What is an “all monies’ charge”?

An “all monies’ charge” secures money loaned, for example on bank overdrafts or personal loans, which are repayable on demand. Payment is not deferred by instalments as in a normal mortgage.

How is the treatment of “all monies’ charges” different from instalment mortgages?

Where there is an all monies’ charge the court has no power under s.36 AJA to postpone the date of delivery for possession: see AJA 1973 s.8 and Habib Bank -v- Tailor [1982] 3 All E R 561, CA. (though the court may still adjourn for a short time if there is a reasonable prospect of the borrower paying off the entire debt over a reasonable period: Birmingham Citizens Permanent Building Society v Caunt, [1962] Ch 883, ChD, or in the ordinary course of procedure, e.g. due to the temporary inability of a party to attend).

4. “ REGULATED AGREEMENTS” UNDER THE CONSUMER CREDIT ACT 1974

What are “regulated agreements”?

These are secured by a legal charge on property and do not exceed £25,000.

Most main mortgages for the purchase of land are exempt agreements (i.e. not covered by the CCA), as are top-up loans for the alteration, enlargement, repair or improvement of a dwelling – see Defending Possession Proceedings for precise categories. 5

5. EXTORTIONATE CREDIT BARGAINS & UNFAIR RELATIONSHIPS

Extortionate credit bargains refer to agreements (of any amount) made before 6th April 2007; they have been replaced by the “unfair relationship” provisions of the Consumer Credit Act 2006, in respect of agreements entered into on or after 6th April 2007.

The court has wide powers to interfere with the agreements, especially setting aside obligations imposed on the debtor and altering interest rates - seek an adjournment to enable a Defence to be filed.

6. UNFAIR CONTRACT TERMS

The Unfair Terms in Consumer Contracts Regulations 1999 will apply to standard mortgage terms.

 An unfair term is not binding on a borrower.

 A term may be unfair if it is not in plain English.

 Otherwise, by regulation 5(1) “a contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirements of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.”

 Decided cases have applied to calculation of interest rates and redemption terms and conditions. Once again - seek an adjournment to enable a Defence to be filed.

7. THE HOUSING POSSESSION COURT DUTY SCHEME

 Legal Services Commission Specification.

 Scope – “The service is available to any person (regardless of means) whose home is at immediate risk, because of possession proceedings.”

 May not cover buy-to-let properties or business premises.

 “If a client has contacted you in advance of a hearing, this does not, of itself, prevent them from using this service. However, in these circumstances, you must not use the service as a substitute for Help at Court or Legal Representation if either is available.”

 “The service covers only advocacy, in the relevant proceedings, on the day of the hearing and follow-up advice, explaining the outcome of the hearing and the options available, etc. You must send each client a 6

letter setting out your advice … Any further work must be dealt with under normal arrangements, e.g. Legal Help if the client is financially eligible.”

 “ You must keep essential record … of clients seen, including such information as we may require.”

 Where the scheme is a Multi Agency Service, the provider may use Agency Advisers. Organisations which provide Agency Advisers and hold a Unified Contract or the Quality Assurance (“QA”) Standard must comply with that standard. If an organisation does not hold a Unified Contract or QA Standard, it must nonetheless comply with specified requirements of the SQM standard.

 Fixed fee per client seen - £84 plus VAT (no additional fee for travel & waiting, and the fee includes the cost of writing a letter of advice after the hearing).

 Proxy Means Test and Session Monitoring Forms.

8. WHAT INFORMATION SHOULD THE DUTY ADVISER OBTAIN?

Most mortgage cases involve instalment mortgages.

It is usual to have a pre-printed checklist, which will be used to collect some or all of the following information:

Documents

 Check documentary evidence - any defence (rare)? - any procedural defects?

Property

 Who lives in the property and will be affected by any possession order?

 Is it the borrower’s home or buy-to-let?

 What is the value of the property?

Mortgage/ arrears

 What is the date & original amount of mortgage?

 What is the remaining term of the mortgage?

 Check the level of arrears - are they admitted? and - what is the reason for them? 7

 How much is required to discharge the mortgage now?

Borrower’s offer

 What is the minimum Norgan order? Can the borrower improve on the minimum Norgan offer, to increase the attractiveness of any offer to the DJ?

 What are the recent payments that have been made?

 What changes have been made to demonstrate to the DJ that past problems are over and the borrower not only can pay current mortgage instalments, but a regular monthly sum towards the arrears.

 What offer is being put forward?

 Does the borrower have the ability to pay, either under their own resources if working, or with the benefit of income support mortgage interest, or with contributions from family and friends (has the borrower completed the Defence Form and Statement of Means?)

 How much equity is there in the property and, in particular, is there proper security for the borrower if the court exercises its powers under s.36 AJA 1970 to adjourn, stay, suspend or postpone possession?

Very often it is necessary to take instructions and tell the district judge about a troubled background resulting in arrears, to effectively contrast that with a hopefully improved and more hopeful position at the date of hearing – and to persuade the district judge to exercise his or her powers under s.36 AJA.

How can borrowers obtain help to pay arrears?

 Mortgage payment protection policy – does one exist and has a claim been made? Late claims are still possible – refer to the Financial Services Ombudsman if insurer refuses to pay.

 Contributions from other members of the family;

 Income support mortgage interest (“ISMI”).

 NB: People over 60 are entitled to help immediately;

 If the borrower took out a mortgage after 2nd October 1995, ISMI will not normally start until 39 weeks after a claim is made;

 but payments can be made sooner if the mortgage came before 2nd October 1995, if the borrower is a carer in certain circumstances, or a single parent whose partner has died or left, or an offender awaiting trial or sentence: see the list at http://england.shelter.org.uk/advice/advice-4176.cfm. 8

 The borrower should seek specialist advice about increasing income, minimising mortgage payments and scheduling other debts, from a debt counsellor, for example from the National Debtline or, in London, from Capitalise (see contact details below).

9. TIPS AND TRICKS

Conduct of hearings

 There is no requirement for borrowers to give evidence by witness statements and all DJs should accept oral evidence at the hearing;

 However, DJs often ask for documentary evidence of payments made, income from work, the value of the property (and hence the equity) and evidence of sale transactions (if the borrower is trying to sell before possession is granted).

Procedural defects to look out for

 CPR Part 55, Rule 55.10 – “not less than 14 days before the hearing the Claimant must send a notice to the property addressed to ‘the occupiers’.” This is a mandatory requirement and a failure to comply precisely should at least result in the adjournment of the case for 28 days;

 Has the lender complied with CPR PD55, especially the additional mandatory requirements for particulars of claim in paragraph 2.5, which relates to “land subject to a mortgage?” Any failure to comply with PD55 may justify an application to dismiss the possession claim, although often the court will adjourn to give the lender time to rectify the mistake;

 Is the lender’s evidence in order? Is the witness statement signed and up-to-date and does it prove the debt? Has the lender produced office copy entries and Family Law Act search?

 Incomplete mortgage statements – especially those not recording payments made, which can be proved – grounds for an adjournment or dismissal?

 Make use of any procedural deficiencies – especially inadequate notice to occupiers, regardless of whether or not any prejudice could be shown.

Practice of district judges

 Some DJs take a very strict view of the requirement of CPR 55.10: if less than 14 days’ notice has been given to “the occupier” then they feel bound to grant an adjournment; 9

 Some DJs claim not to be interested in “why” the arrears arose – but this is one of the considerations that the Court of Appeal in Norgan said are likely to be relevant in establishing the relevant period;

Prior agreements

 Even if a borrower has previously agreed to an arrears repayment regime before the hearing, DJs will often interfere (and usually reduce) the monthly payments towards arrears, if the amounts agreed appear to be unrealistic;

 However, sometimes there are advantages in borrowers having reached agreement with lenders before the hearing, when their income would have been unlikely to persuade a DJ to make a suspended order, but often this will only buy the borrower a short period of time.

Buying time

 Borrower needs time to sell his property – the need for documentary evidence/ sales particulars/ solicitor’s letter. Rather than grant an adjournment to give time for a sale to go through, DJs may make an outright order postponed to a future date (e.g. in 2 months’ time), and suggest that borrowers can always apply to vary the order (to further postpone possession) if the sale progresses;

 In a time of falling house prices and stagnant house sales, DJs are less impressed by small amounts of equity and are likely to want much greater equity, if they are to say that the lender’s security is not threatened by an adjournment or suspended order;

 If the future is uncertain: make an offer to the DJ: possession order suspended on terms as a temporary measure and review in 6 to 12 month’s time;

Changing contractual terms

 One view is that courts cannot interfere with the contractual terms, i.e. the instalment payment dates, but DJs do alter these in some cases, if there are good reasons (e.g. borrower now paid on a different day of the month);

 Beware that in all cases, DJs tend to be less disposed to exercise their powers if the borrower does not physically live in the property (e.g. buy-to-let mortgages).

“All monies’ charge”

 You may still be able to represent a borrower if their home is at risk as a result of possession proceedings for an all monies’ charge. Check for any defences or unfair terms. 10

 Is the borrower likely to be able to repay the entire debt over a reasonable period? If so: apply for an adjournment;

 Beware of attempts to oust the court’s powers under s36 AJA: e.g. a normal 25-year mortgage for the purchase of a house, but with a term buried in the small print that “this mortgage becomes due and repayable in full upon written demand by us.” Argue that the court still has powers under s36.

“Regulated agreement”

 Check that it has been properly executed and is in the prescribed form, because if not it will be enforceable only by way of a court order.

 The receipt of a default notice by a borrower entitles him or her to apply to the court for a “time order”, by means of which the court can re-schedule payment of money owed under the agreement (over any length of time). Where you think that a time order may be appropriate - ask for an adjournment for an application to be made and for witness statement in support to be filed, with a skeleton argument.

Enforcing possession orders

 Applications for a stay of execution of an eviction warrant – calculate payments that have fallen due since making of the possession order and payments actually made (whether contractual or under the terms of an SPO). DJs are often impressed by serious attempts to pay over time, even if they fall short.

 In your calculations, discount the most recent payment due (which will tend to increase the apparent arrears) and/or emphasise change in circumstances.

10. USEFUL LINKS

 Shelter : www.shelter.org.uk/

 National Debt Line : www.nationaldebtline.co.uk

 Capitalise : www.capitalise.org.uk

 Advice Now : www.advicenow.org.uk

 Community Legal Advice : www.clsdirect.org.uk/

 Financial Services Authority : www.fsa.gov.uk

Tim Powell 16th July 2008