When threatened with repossession people are often surprised to find that the law can fall significantly in favour of the borrower. Court cases will almost always be adjourned if the borrower can provide evidence that they will be able to pay the arrears on the account in a reasonable length of time.
The Council of Mortgage Lenders (CML) has heavily documented the fact that the bulk of arrears are caused by unemployment and relationship breakdowns. The other main factors are failing to prioritise debts properly, general over-borrowing on secured and unsecured debt, unforeseen personal circumstances (such as bankruptcy, ill-health, bereavement or imprisonment for example) and social issues such as drinking and gambling
Lenders have a duty of care to do all they can to help borrowers bring their accounts back up to date. Short-term measures are usually used when the account is one to three months in arrears (pre-litigation). Medium-term measures are applied once litigation has started (usually over three months of arrears) and long-term measures might involve working with the borrower to restructure the loan over a longer term to reduce monthly payments and so alleviate monthly financial pressures.
Lenders will work through an “Income and Expenditure” form with the borrower to establish where their money goes and whether there is any way the borrower can make ‘over-payments’ on top of their monthly repayment to help clear arrears. It is becoming quite the norm for lenders to send out ‘Field Agents’ to borrowers’ homes. These are people who are trained to talk through borrower’s financial circumstances and ascertain whether the borrower can make the appropriate financial commitment to pay off the arrears.
In certain circumstances lenders will allow a payment holiday. This is however usually when the borrower is on a “capital and repayment” mortgage as opposed to “interest-only” and has sufficient equity in the property to give the lender comfort that their security will not be eroded. Most payment holidays are not permitted for longer than three months and usually the borrower has had to make ‘over-payments’ previously in order to comply with the criteria. The only exceptions to this rule are generally in the case of the death of one of the borrowers. Lenders will look upon this case with sympathy and in some circumstances allow up to a six month payment break – however the debt is then added onto the overall loan. You also need to be mindful that arrears will build up over the term of the ‘holiday’.
If the loan is capital and repayment many lenders will allow interest only payments for a certain length of time.
In some circumstances lenders will suggest the surrender of an ISA or Endowment policy but this is something that needs to be investigated fully and discussed with a Financial Advisor.
To start repossession proceedings the mortgage normally has to be a minimum of three months in arrears. At the time of writing the Government has extended this to six months to allow borrowers’ breathing space in the current economic climate.
In order for the lender to take possession of the house they have to petition the County Court for a Possession Order. The Court normally has to be entirely satisfied that every avenue has been explored by the lender and borrower before they will grant the order. The Court then has three options available:
In order for the lender to be given a court hearing they have to provide a well documented case to the Court. In this they must give fully itemised details of all the credit and debit transactions on the borrowers account. They should also prove that they have done everything possible to assist the borrower in bringing the account back into order.
Once the Possession Order has been granted the lender then takes possession of the property. The Court will decide a date that the borrower has to leave the premises and if necessary a Bailiff will be employed to accompany a representative of the lender to ensure the property has been vacated.
It is to be noted that the borrower is still entitled to settle the mortgage in full at any point right up until the lender disposes of the property.
It is also to be noted that the lender can still sue the borrower for the difference arising between the outstanding debt and the sale price of the property if they feel that the borrower has the financial means to repay the balance. Conversely if the property is sold for more than the debt the lender has a duty of care to the borrower to repay any outstanding balance once all reasonable costs have been deducted.
If there is a guarantor who has given a personal guarantee against the property to assist the borrower with the original purchase of the property they can be called on to repay the debt in full.
The Court can appoint a Receiver if there is an income derived from the property – in the event of a buy to let property for example. The income (rent money) is then collected from the tenant and paid directly to the lender to help reduce the overall debt.
Once the lender has regained possession of the property they will arrange for the locks to be changed. The utilities meters will be read and the utilities and the telephone line disconnected. The borrower will be responsible for payment of all services prior to the meters being read.
If the borrower has left any possessions at the property the lender has a duty of care to ensure that they are held in trust on the borrowers’ behalf.
The lender also has a duty of care to obtain the best price they reasonably can when selling the property and many use ‘Disposal Agents’ who specialise in selling properties through property auctions.
It is also a point to note that if a lender sells a property and fails to obtain an appropriate selling price (due to an error on their part or by omitting details from the sales particulars) the former borrower would have grounds to sue for damages.
The CML Possessions Register is a fully computerised database which holds information on all borrowers who have had properties repossessed. Most lenders are members of the CML and will consult this database before making offers of mortgage to any prospective borrower.