Possession claims based on mortgage arrears (or arrears under home purchase plans) must initially be dealt with under the relevant pre-action protocol. This protocol is called the Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property.
Pre-action protocols are a vital tool in the resolution of disputes, encouraging the parties to resolve the issues wherever possible without resorting to court. They also encourage more contact between the parties, and ensure they have all the relevant information to resolve matters early on.
When does the Pre-Action Protocol for Possession Claims?
It applies where there are arrears on:
- first charge residential mortgages and home purchase plans regulated by the Financial Conduct Authority
- second charge mortgages over residential property
- secured loans on residential property regulated under the Consumer Credit Act 1974, and
- unregulated residential mortgages
The Protocol also applies where a claim includes a claim for money in addition to a claim for possession.
What are the requirements of the Pre-Action Protocol?
Initial contact by the lender and provision of information
Where a borrower falls into arrears, the lender should:
- provide the borrower with the required regulatory information sheet or the National Homelessness Advice Service booklet on mortgage arrears
- advise them to contact the local authority housing department
- refer them to appropriate sources of independent debt advice where necessary
- provide them with details of the arrears, including the total amount owed, the total outstanding on the mortgage (or home purchase plan), and whether (and an estimate) an interest or charges will be added
If the lender is aware that the borrower has difficulty in reading or understanding any information it gives, it is expected to take reasonable steps to ensure the information is communicated in a way the borrower can understand.
Discussing arrears and proposals for repayment
The lender and borrower should take all reasonable steps to discuss the cause of the arrears, the borrower’s financial circumstances, and any proposals they may have for repaying the arrears. It should be considered whether the causes of the arrears are temporary or long term and whether the arrears could be repaid within a reasonable time period.
If the borrower makes a reasonable request to change the regular payment date within the same payment period, or the payment method, the lender must consider it. If the request is refused,
the borrower should be given written reasons as to the refusal, within 10 working days.
If the lender makes a proposal for payment, the proposal should clearly be set out; and the borrower must be given a reasonable time in which to consider it.
At all times, the parties should actively seek to resolve the dispute and try to reach a settlement to avoid proceedings. This may mean considering options such as extending the term of the mortgage, changing the type of mortgage, deferring the payment of interest and capitalising the arrears.
When can possession proceedings be brought?
Bringing formal possession proceedings should be a last resort. If a borrower fails to comply with an agreement for repayment of the arrears, the lender must give the borrower 15 working days’ written notice of its intention to commence possession proceedings.
However, the Protocol makes clear that possession proceedings for mortgage arrears should not be started against a borrower who can show that:
- they have submitted a claim to the Department for Works and Pensions (DWP) 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 DWP or an insurer or the local authority, and
- they are able to pay a mortgage installment not covered by a claim to the DWP or an insurer
Furthermore, lenders must consider postponing proceedings if a borrower can demonstrate that reasonable steps have been or will be taken to market the property at an appropriate price on reasonable professional advice. If they can show this, the borrower must take all reasonable steps to actively market the property, and:
- provide the lender with a copy of the particulars of sale, and
- the Energy Performance Certificate (EPC) or proof that this has been commissioned, and
- details of any offers received, and
- details of the estate agent and details of the conveyancer instructed to deal with the sale, and
- authorise the estate agent and conveyancer to communicate with the lender as to progress of the sale and the borrower’s conduct during the transaction
If a lender decides not to postpone the commencement of possession proceedings, it must give the borrower reasons for this decision at least five business days before starting proceedings.