The Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property sets out the behaviour the Court will normally expect of the parties prior to the commencement of a possession claim to which the Protocol relates. The Protocol encourages parties to resolve any difficulties wherever possible without the need for Court proceedings and encourages more contact between them.
When does the Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property apply?
The Protocol applies where there are arrears on:
First charge residential mortgages and home purchase plans regulated by the Financial Services Authority under the Financial Services and Markets Act 2000;
Second charge mortgages over residential property;
- secured loans on residential property regulated under the Consumer Credit Act 1974; and
- unregulated residential mortgages.
Where a claim includes a claim for money as well as a claim for possession the Protocol applies to both claims.
What are the requirements of the Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property?
Initial contact by the lender and provision of information
Where a borrower falls into arrears the lender is expected, where appropriate, to provide him with the required regulatory information sheet or the National Homelessness Advice Service booklet on mortgage arrears. The lender should also advise the borrower to contact the housing department of the borrower’s local authority. Where necessary the lender should refer the borrower to appropriate sources of independent debt advice.
The lender is also expected to provide the borrower with details of the arrears. This should include the total amount of the arrears, the total outstanding of the mortgage or home purchase plan, and whether interest or charges will be added. Where interest or charges are to be added the lender should provide details or an estimate of the interest or charges that may be payable.
Discussion of the arrears
The parties are expected to take all reasonable steps to discuss with each other, or their representatives, the cause of the arrears, the borrower’s financial circumstances and any proposals he may have for repayment of the arrears. Consideration should be given as to whether the causes of the arrears are temporary or long term and whether the borrower may be able to pay the arrears within a reasonable period of time.
Proposals for repayment of the arrears
The lender is expected to consider any reasonable request made by the borrower to change the date of the regular payment within the same payment period or the method by which payment is made. If the lender refuses such a request it should provide the borrower with written reasons for the refusal.
The lender is expected to respond promptly to any proposal made by the borrower for payment. If the lender does not agree to such a proposal it is required to provide the borrower with written reasons within 10 business days of the proposal.
If the lender makes a proposal for payment, it should give the borrower a reasonable period of time in which to consider the proposal. Any such proposals should be set out in sufficient detail so that the borrower can understand the implications of the proposal.
Communication and the provision of information
Where the parties are required to communicate with each other or provide information to each other, they are expected to take reasonable steps to do so in a way that is clear, fair and not misleading.
If the lender is aware of any difficulty the borrower may have in reading or understanding any information given, the lender is expected to take reasonable steps to ensure that the information is communicated in a way that the borrower can understand.
Possession proceedings to be brought as a last resort
The Protocol takes the view that possession proceedings should be brought as a last resort.
If a borrower fails to comply with an agreement for repayment of the arrears, the lender is required to give the borrower 15 business days notice in writing, of its intention to commence possession proceedings unless the borrower remedies the breach in the agreement.
The Protocol provides that possession proceedings for mortgage arrears should not be commenced against a borrower who can demonstrate that:
- he has submitted a claim to the Department for Works and Pensions for Support for Mortgage Interest or an insurer under a mortgage payment protection policy or a participating local authority for support under a Mortgage Rescue Scheme and has provided all the evidence needed to process such a claim;
- there is a reasonable expectation that payment will be made by the Department for Works and Pensions or an insurer or a local authority; and
- he is able to pay a mortgage instalment not covered by a claim to the Department for Works and Pensions or an insurer.
The lender is required to consider postponing the commencement of possession proceedings if a borrower is able to demonstrate that reasonable steps have been or will be taken to market the property at an appropriate price in accordance with reasonable professional advice. In such circumstances the borrower is expected to continue to take all reasonable steps to actively market the property.
Where a lender agrees to postpone the commencement of possession proceedings by reason of the borrower’s attempts to sell the property, the borrower is expected to take the following steps:
- provide the lender with a copy of the particulars of sale;
- provide the lender with a copy of the Home Information Pack;
- provide the lender with details of any offers received. Any such offers should be notified to the lender within a reasonable period of time specified by the lender;
- provide the lender with details of the estate agent;
- provide details of the conveyancer instructed to deal with the sale;
- authorise the estate agent and conveyancer to communicate with the lender in respect of the progress of the sale and the borrower’s conduct during the process.
If a lender decides not to postpone the commencement of possession proceedings, to enable the sale of the property by the borrower, it is required to provide reasons for this decision to the borrower at least 5 business days before the commencement of possession proceedings.
The Protocol encourages lenders to consider the postponement of possession proceedings where the borrower has made a genuine complaint to the Financial Ombudsman Service in relation to the potential possession claim. If a lender decides not to postpone the commencement of possession proceedings pending the decision of the Financial Ombudsman Service it is required to provide reasons for this decision to the borrower at least 5 business days before the commencement of possession proceedings.
Alternative dispute resolution
The Courts take the view that possession proceedings should be a last resort and expect lenders to hold off from commencing proceedings when a settlement is still being actively explored. The Protocol encourages the parties to discuss the various options including extending the term of the mortgage, changing the type of mortgage, deferring the payment of interest and capitalising the arrears.
What happens if a party does not act in accordance with the Protocol?
If requested by the Court, the parties should be able to explain what actions they have taken to comply with the Protocol.