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Mortgage Defaults and Possession Proceedings

Tuesday, 23 July 2013

Mortgage possession claims must be carried out correctly to avoid legal difficulties.

As might be expected the procedures for a lender to gain possession of a borrower’s house are highly regulated and can be complex.

Lenders Must Treat Borrowers Fairly

The Financial Conduct Authority rules state that mortgage lenders must treat struggling borrowers fairly and give them a reasonable opportunity to arrange to pay off arrears if they are able to. Lenders must consider reasonable requests from borrowers to change when or how they pay.

Court action, therefore, should be a final resort when other attempts to collect arrears have failed. Borrowers who feel unfairly treated by lenders that fail to follow these rules can complain to the Financial Ombudsman Service.

Pre-action Protocol for Possession Proceedings

Parties’ actions before proceedings can be an important factor in the outcome of a case. If legal action is proposed, lenders in particular should follow the pre-action protocol relating to possession. Judges will consider whether both parties have followed the protocol in the event a case reaches court.

This can have a significant effect. For example, if a lender hasn't followed the protocol this could persuade the judge to grant a suspended possession order (allowing a borrower to stay in their home as long as they keep to an arrangement to pay off the arrears) rather than an outright possession order. Or the offending party could face a punitive costs order.

Pre-action Protocols Apply to Lenders and Borrowers

The protocol affects both borrowers and lenders. Borrowers must keep in touch with their lender, act fairly and reasonably with their lender and try to sort out payment of their arrears. Lenders must give borrowers information about their legal rights and if they miss any payments tell them how much the arrears are, how much is still left to pay and what interest or charges will be added.

Lenders bear the greater burden to provide information under the protocol and it is sensible for lenders to give borrowers a copy of it when they supply this information since the protocol sets out how the court expects borrowers to behave once they have received this information. However, this is not required.

Lenders Should be Reasonable

A lender has to consider any reasonable request from a borrower to change the timing or means of payment and they must respond to borrowers quickly with an answer. If lenders refuse they must tell borrowers why they have refused.

Lenders should also not start court action while both parties are trying to come to an agreement. If an agreement is reached but not held to, the lender should start court action and should notify the borrower in writing at least 15 working days in advance.

The major mortgage lenders agreed in November 2008 not to start mortgage possession proceedings over residential property unless the borrower had accrued three months arrears.

Seek Specialist Legal Advice

Both borrowers and lenders should be aware of the potential complications involved in possession procedures and seek legal advice before taking action. For more information contact Peter Gourri today by email or telephone 020 7611 4848.

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