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This guide relates to England and Wales. You may be facing the loss of your home for a range of reasons, your options and rights will vary according to the type of debt that is secured.
Your options and rights will depend on the type of mortgage/secured loan agreement
The lender’s right to possession is contained in the loan agreement. You should have been given a copy of the loan agreement when you took it out. You are entitled to ask your lender for a copy. Some loan agreements are made up of several documents including an agreement, a mortgage offer, a conditions leaflet or booklet, a mortgage deed and a charges schedule. It’s best to ask in writing for ‘all documents relating to the terms of the loan’. There might also be a separate mortgage payment protection policy and it’s worth checking to see if it applies and if not check the Financial Ombudsman Service for information about refunds of premiums and interest for missold policies.
This advice deals only with regulated mortgages – where the lender has taken a first charge over a UK property at least 40% of which is occupied as a dwelling by the borrower or their immediate family. Different rules apply to dealing with arrears and possession for the following situations:
Possession proceedings for homes subject to ‘regulated first’ mortgages
Mortgages to purchase a home or to replace that loan will usually have terms that only allow them to take possession if a term of the agreement is broken by you. The lender must prove the breach to get a court order to enforce the right to possession. If you can show the breach has been remedied by the time of the hearing the proceedings will be dismissed but you might still have to pay the legal costs if you did not clear the arrears before the court case was issued.
If proceedings have started, don’t panic
Even if you are being threatened with imminent eviction take time to assess your situation and research your rights and options. Be wary of anyone who offers a quick solution it may come at a high price and you may find yourself in worse trouble a little further down the line.
Be wary of commercial websites
There is a host of websites offering to save homeowners from possession some of which contain good advice on ways of dealing with mortgage debt. But they may also be marketing tools for commercial lending companies, property developers or debt management companies and so they will not necessarily present options fully and fairly. Even if a site is described as ‘dot org’ it isn’t necessarily a charity. Do look at the company registration details on the site and the ads that appear on the page. There is a list of useful free reliable resources elsewhere on www.nationaldebtline.co.uk, a charity and which has a mortgage self-help pack. They also have an email and telephone advice service.
1. Assess your situation honestly
Most people feel emotionally attached to their home but you should consider if it really makes sense to keep it. Follow the link to the assessment exercise. By writing down the answers you may be clearer about what you need to do next. Close family and friends may feel they need to support you by telling you what they think you want to hear rather than risking upsetting you by pointing out the pitfalls.
If you want to sell but there is negative equity and your lender does not agree there is a High Court procedure you can use for getting permission to sell. You will still be liable for any difference between the sale proceeds and the mortgage.
Don’t just hand back the keys you will almost always get a better price if you sell.
If you want to stay put then you need to consider the available sources of help and the rules the court will apply if your lender takes possession proceedings.
2. Check out government-sponsored and genuine charitable websites for free, balanced information on your rights & ways of dealing with the arrears
For information about mortgage arrears check:
3. Find out what your lender should be doing
The pre-action protocol for mortgage arrears is part of what are known as the Civil Procedure Rules which govern how court proceedings take place. Lenders must follow the protocol before starting court proceedings to repossess residential property. It is worth taking the time to read it. If you can show it hasn’t been followed the judge may adjourn or stay the proceedings so that the protocol can be followed. If the lender can show that although they haven’t followed it an order is necessary to protect their interests the judge may make a suspended or outright possession order but may deny the lender the right to charge some or all of their legal costs.
Your lender is concerned with how their debt will be safeguarded and paid and will generally want any arrears to be paid as quickly as possible. Lenders will often say they require a suspended possession order so that they can repossess your home easily if you break an agreement. However a court order may not in fact be necessary or justified and a judge may be prepared to give you a longer period to pay off the arrears. You need to consider other aspects of your financial situation before accepting any proposal a lender may make.
4. Speak to your mortgage lender
It is always a good idea to speak to your lender as soon as you think you are going to have difficulty making a payment. They may be able to offer you some measures such as paying interest only that would prevent your account being treated as ‘in arrears’.
Not speaking to your lender may cause them to refer you to their own fee charging debt advice service, add arrears charges, encourage them to start court proceedings or report your default to a credit reference agency which can damage your prospects of getting credit elsewhere.
You don’t have to use your lender’s debt advice service if you don’t want to and you shouldn’t be charged for a service you haven’t asked for.
Most lenders have a clause that provides they can recover their legal cost of pursuing you for arrears. The court can make an order to override this if it thinks the lender acted unreasonably in bringing proceedings so do make sure that you put any offers in writing and keep copies and make sure that you make any payment you have offered whilst you are waiting for a response.
By speaking to your lender you should be able to discuss a range of options including interest only, reduced monthly payments, payment holidays, payment of arrears by instalments, capitalisation of arrears. See National Debtline for more information about your options.
Don’t be pressured to make financial promises you can’t keep your lender may use them as evidence of your unreliability if they later take court proceedings.
Arrears Charges: Some lenders charge borrowers in arrears extra charges, late payment fees, extra interest etc on top of the ordinary contractual interest on the mortgage balance. Financial Services Authority rules brought in on 30th June 2010 provide that lenders must not apply arrears charges where an agreement is in place to repay arrears. Any payments by the borrower must be applied first to clearing missed monthly payments rather than arrears charges and repossession should always be a last resort. If extra charges are making things worse and you have offered a reasonable instalment to clear them which has been rejected, start making the payment you have offered and complain via your lender’s complaints procedure. If they keep adding charges then complain to the Financial Ombudsman. You will need to check if they have jurisdiction if your loan predates April 2008. You could also challenge the charges in Court but the lender will add their legal costs if you fail and it won’t stop repossession if the charges are a relatively small part of your arrears. It is likely to be cheaper to use the Ombudsman service.
5. What can the judge do
Unlike some other debt cases possession proceedings are dealt with by attending a hearing. Judges are used to dealing with unrepresented homeowners and will generally want to avoid making someone homeless. They can only act within the law and have to balance the lender’s legal right to recover the money and interest they are owed against your right to a fair hearing and to be treated fairly by the lender.
The Administration of Justice Act 1970, section 36 applies to mortgages of land which include a dwelling house. It allows the Judge to exercise discretion if it appears that by doing so the borrower will be able to repay the mortgage and arrears within a reasonable time.
The law doesn’t specify how the repayment must be made and so it is open to the borrower to bring evidence to court to show how they will clear the mortgage and arrears by any means including remortgaging, raising a lump sum , selling all or part of the property or paying by instalments.
S36 allows the Court to do the following:
Instalments: If you have a reasonable amount of surplus equity a court may suspend possession and allow you to spread the repayment of your arrears over the remaining term of the mortgage provided you can show you have reasonable prospects of keeping up the payments (Cheltenham & Gloucester Building Society v Norgan 1996 1 All ER 449). You are liable to pay interest on any outstanding arrears and this needs to be factored in when working out your monthly arrears contribution.
If you have broken agreements to pay in the past be prepared to explain why you did so and what is different this time.
Awaiting developments? It may be that things will get worse before they get better –for example, you are completing the waiting period for DWP mortgage interest help and can’t make a payment until then or trying to recruit a lodger or to complete a sale. S 36(4) of the Act allows the judge to set further hearings to review the situation and vary the terms imposed by the court. The judge can adjourn with or without some sort of interim payment from you provided they are satisfied that you will eventually have a reasonable prospect of clearing the mortgage and arrears (Skandia Financial Services v Greenfield (1997) 9 CL 527 and Cheltenham & Gloucester v Grant 1994 26HLR).
No Equity? You are unlikely to persuade a court to let you pay by instalments or give you time to raise money if you have level or negative equity unless the property price is likely to rise in the near future or you are likely to be able to raise enough money to clear the arrears and legal costs completely in less time than the lender might take to sell the property if given possession.
Staying in the property pending sale
The court can postpone possession to allow for completion of a sale by the borrower but is only likely to do so if you have good evidence that the property is likely to be sold. Judges often want evidence that it is being marketed for a realistic price and may go further and require evidence that contracts are about to be exchanged. Guidance on allowing borrowers to stay pending sale is given in Cheltenham & Gloucester v Booker, CA The Times 15th November 1986. The Court should be satisfied that:
Do fill in the court reply form (see National Debtline’s mortgage arrears pack) and send it back via possession claims online or by post. There is space to give details of your income and expenses, reason for your arrears, other debts and any offer you wish to make. Keep a copy for your records.
If you are a joint borrower either or both of you may attend court and you really should go. Possession hearings are held in the County Court nearest to the property. It’s not a good idea just to send someone to speak on your behalf or send a letter unless both sides have agreed an adjournment in writing and sent the court an advance copy.
The judge may want to hear evidence from you. Your representative cannot give evidence they can only make legal submissions with the court’s permission. The judge may have their own ideas on how the case should be dealt with and the representative you are relying on may not in fact accurately repeat what you think has been agreed.
Don’t expect the judge to contact third parties outside the court for proof of what you say it’s not their role, they can only consider evidence the parties present to the Court.
Don’t expect the judge to take your word for something – for example, if you are waiting for an Ombudsman ruling on the fairness of mortgage terms or a PPI refund bring the correspondence especially anything that gives an expected time scale.
If you are waiting for something that will help you pay the arrears take proof – for example, a job offer, proof of a benefits award, confirmation from an agent that your house is under offer etc.
If you are waiting for benefits claim to be paid you can work out how much you are likely to get and print it off using the benefit calculator tool on the http://www.turn2us.org.uk. The amount of help you may get with mortgage interest depends on what your mortgage is for and when it was taken out. More details are available on Citizens Advice’s advice guide and Shelter. Most judges don’t have detailed benefits knowledge so taking some figures to court is very helpful. Mortgage help is normally paid directly to the lender four weekly in arrears and the government periodically changes the interest rate the DWP use to calculate it.
Do take receipts for payments made especially if they were made within two weeks prior to the hearing.
Do take evidence of the value of your home.
If you are relying on case law do take copies to court (see Researching the Law elsewhere on this site).
Take three copies of your evidence to court and your reply form. If you have time post an extra copy of your evidence to your lender’s legal representative well before the hearing and invite them to agree your payment proposal. If they ignore your offer or refuse it but at court the judge grants what you have asked for you might be able to persuade the judge to restrict the lender’s right to add legal costs by drawing attention to your offer and the mortgage possession protocol.
Take a pad of paper so you can note what the Judge decides especially any expected payment dates as the Judge may use unfamiliar terms and it is easy to misunderstand in the emotion of the moment.
You have a right to attend any court hearing and it will be heard in private. It normally last five to ten minutes. The judge is used to unrepresented homeowners. Male judges are called ‘Sir’ and females judges are called ‘madam’. No wigs or gowns are worn.
Many courts do have a duty adviser from a local advice agency and so it is sensible to attend early to see them but there may be a queue so do try to seek help in advance.
Lenders often send local legally qualified agents to court who may have a number of cases to deal with that day and no particular knowledge of your case and so you have an advantage if you have prepared well.
The lender’s agent may want to agree terms with you before you go into court claiming they know how the judge will decide your case. However, this may not be true and you must be careful about being pressured into an unrealistic agreement as you won’t be able to appeal an order that you have agreed to.
As the lender is seeking possession their representative will usually be asked to speak first and say why they feel a possession order or suspended order is necessary. The judge should check that the lender’s paperwork complies with the court rules for possession claims (available at CPR 55) and that the protocol has been followed.
The judge will then ask you what you would like to say:
Setting Aside/ varying a possession order
If for some reason you missed the possession hearing you need to apply promptly to court on form N244 (available on the Court Service website). Promptly means as quickly as possible after you find out about it. Use the form to request an order to set aside the possession order and substitute new terms.
If you can’t afford to keep up the terms of a previous suspended possession order, don’t wait for the lender to chase you or issue a bailiff’s warrant. Contact your lender to agree new terms and if the missed payments can’t be replaced within a few weeks apply to court on form N244 for an order to vary the terms of the possession order to new terms that you can afford.
On the N244 form you should ask that the application be listed ‘on notice’ for a 10-minute hearing which is the most the court is likely to allow. The application should be listed before a District Judge.
Should normally be lodged within 14 days and practically speaking are for use if the judge got the law wrong. Most possession orders are made on the basis of the judge exercising discretion and interpreting the evidence about the facts so if you disagree with a previous decision you should consider applying to set aside or vary the order rather than appeal it, especially if you can show your circumstances have changed.