Written by John Kruse, one of the leading experts on Bailiff Law, this consumer friendly guide is essential reading for anyone who comes into contact with a bailiff.
The book is easy to understand and clearly explains the rights
a bailiff has, and also what they cannot do when collecting debts and repossessing goods etc.
There are several different types of mortgages available to the house buyer, we will begin by going through some of the popular types.
Repayment Mortgage
This is the traditional variant where the capital is repaid gradually over the period of the loan along with the interest.
Interest Only Mortgage
The borrower pays only the interest throughout the term of the mortgage. This means the capital never reduces, the borrower would need to make an arrangement to have this paid by the end of the term. It might be that the mortgage has a repayment vehicle for the capital, these include:
Endowment Policy
This would mature at the end of the mortgage term and should cover the outstanding balance. There have been many occasions where the borrower’s maturity proceeds haven’t been sufficient to pay the mortgage balance, specialist advice such be sought if this has happened to you. If you know that your endowment is underperforming you must consider alternative options to get your mortgage paid.
Pension or PEP/ISA mortgages
These are similar to the endowment mortgages except that the borrower pays into a different type of policy.
All monies charges
If you have a huge secured overdraft (usually these “One Account” type setups) they are known as All monies charges. These mortgages cover “all borrowing, past, present and future”. If you fall into difficulties with this type of mortgage there are not as many safety nets in place to help the consumer, you MUST seek specialist advice as soon as possible.
Dealing with arrears – Pre Court
If you fall into arrears it is important to be realistic, please consider the affordability of the mortgage and whether you can actually afford to remain in your property. It could be worth completing a financial statement to see exactly how things stand for you. Mortgage arrears are a priority debt, this means you should make arrangements to repay them prior to dealing with any of your non-priority credit debts. As soon as you realise you are having difficulties with your mortgage it is important to contact your lender, they may have a code of practice which outlines how they help people, ask for a copy! Mortgages taken out pre 31st Oct 2004 may have the protection of The Mortgage Code, find out if the lender subscribed. If your mortgage was taken out after the 31st Oct 2004 find out if the lender registered with The Financial Services Authority (FSA) You might be able to see if the lender has breached the rules, it may help with your negotiations.
Arrears options
Current Instalment + something towards the arrears
If, when you’ve completed you financial statement, you can afford to keep up with your current instalment and have a little bit of money left over, you may wish to offer a little extra to clear the arrears over a reasonable amount of time. You should only offer an amount that is affordable and realistic. Always gain confirmation in writing that your proposal has been accepted. A quick word of warning, some mortgage firms charge interest on the arrears, ensure that your proposal takes this into consideration.
Raising a lump sum
It might be a possibility that you could raise a lump sum to clear the arrears, you should always be cautious of borrowing more to do this, if in doubt seek financial advice. You should always take care if you’re considering cashing in any financial polices to raise the money.
Capitalising the arrears
This is where the lender adds your arrears to the mortgage, it’s a bit like a mini re-finance. It should be noted that the arrears might attract additional interest over a very long period of time so it could work out to be quite expensive. The lender is only going to consider this as an option if no new arrears are likely to accrue, they are likely to request a copy of your financial statement prior to making a decision.
Extending the term of the mortgage
This could reduce your monthly instalments on a repayment mortgage, it will be more expensive in the long term due to the additional interest costs.
Re-mortgaging
This involved taking out a new loan to repay the old, there may be additional setup fees to consider with this route. With the current economic climate you may find it difficult to get a rate as good as your old one.
Switching mortgage type
Seek financial advice if you decide to move from repayment to interest only. The instalments may be more affordable but you’ll never pay back the capital unless you set up a repayment vehicle.
A temporary repayment holiday might provide a quick fix, please consider that your interest will still accrue whilst you’re not paying.
Income Support Mortgage Interest (ISMI)
It is always worth ensuring that you are claiming all you are entitled to, If you’re in receipt of certain means-tested benefits you might be able to have some or all of your mortgage interest paid. For most people there is a 39 week wait for any claims, you can only have payment for the first £100,000 of any mortgage interest too.
Time Order
If your mortgage or secured loan is regulated by The Consumer Credit Act and a default notice has been issued, you might be able to apply for a Time Order. This would allow you to vary the length of time the mortgage is paid over, which in turn could reduce the instalment amount. These are usually only granted as a temporary measure although recent case law suggests that they could be permanent.
Possession Action
You can find the rules surround Possession action by taking a look at Part 55 of the Civil Procedure Rules. Court action should be used as a last resort, prior to action being taken you should receive correspondence stating that action is pending. If the loan is regulated by The Consumer Credit Act, you would have to have had a default notice which has expired. FSA regulated agreements require that prescribed information is sent out along with a copy of the “What to do when you cannot meet your mortgage arrears” booklet. You can see a copy here:
1. The Lender issues a claim on claim form N5
2. Defendant replies or ignores claim
3. Hearing
4. The judge will either grant a suspended order, an adjournment (or no order), case management directions or an outright order for possession.
5. If an outright order is granted or the defendant defaults on the suspended order a warrant of possession is granted.
6. The defendant could apply to suspend the warrant of possession
Proceedings usually start about 4-6 weeks after the initial notice of intended proceedings (letter before action). You would receive a claim form and the particulars of claim. The hearing date will then follow, the vast majority of cases are heard in the county court. The particulars of claim has to include quite specific information, it is worth checking yours with a trained Money Adviser or Solicitor.
There may be a possibility that you could defend the claim, if this is the case you must seek help from a specialist. Most defences are based upon an incorrect amount being chased, some might question the enforceability of any CCA regulated loans, some might question the “fairness” of the agreement. In this article I’m not going to dwell on defences, we will assume you owe the money.
Legislation & Case Law
The legislation surrounding possession proceedings varies depending on the type of agreement you have. Very few people may have a Consumer Credit Act regulated agreement, if this is the best option to deal with arrears would be to apply for a Time Order. This would allow the borrower to reschedule the whole debt via the courts which could mean that the length of time that the agreement is paid over extends. When a Time Order is applied for you can ask the court to consider changing the rate of interest at the same time. There are millions of threads on this site discussing the virtues of the Consumer Credit Act so do take a look around! Please note that as of 31st October 2004, first mortgages will not be Consumer Credit Act regulated even if they are within the monetary value, this is because they are FSA regulated.
FSA regulated mortgages are covered by s8 of The Administration of Justice Act 1973. The court would need to consider if the borrower can meet the ongoing mortgage instalment plus a “reasonable” amount each month against the arrears. Most judges considered that 3-4 years would be a reasonable amount of time to clear the arrears, in 1995 The Court of Appeal decided that a reasonable amount of time could be the entire remaining term of the mortgage. This landmark case was The Cheltenham & Gloucester V Norgan, it is fundamentally important to quote this case if you are looking to obtain an order to suspend possession.
Secured Overdrafts which are not CCA regulated (these one account type things!) are covered by s36 of The Administration of Justice Act 1970. You have to be very careful with these as if you default of the agreement the WHOLE sum under the mortgage becomes due and will have to repaid. There is little protection via the courts with these agreements so it would be paramount that you could find the money to repay the debt or have a defence to the action. It would be important to seek specialist advice as soon as possible.
The Hearing
If the borrower doesn’t wish to fight the possession proceedings and is happy to move out they may not have to attend the hearing. An order for immediate possession will be granted and the court can set a date for when the property will have to be vacated.
If they wish to try and remain in the house or request time to find alternative accommodation, they must attend the hearing – Even if an arrangement has been made with the lender.
The court usually grants one of the following orders:
· An order for immediate possession
· An order for possession postponed or stayed (Usually if the borrower has asked for time to sell)
· A suspended possession order (You could remain in the house providing you keep up with the agreed instalments)
· An adjournment (usually when there are outstanding issues to resolve)
A court would usually agree or suggest an adjournment if:
There are outstanding matters that need to be finalised
For CCA regulated agreements, the defendant wishes to make a Time Order
Complex legal issue which needs further information/advice
The borrower has paid the arrears
Defences:
I’m not going to spend any time on possible defences, if you feel you want to consider a defence to repossession action you must seek specialist advice. Possible defences include overriding interests with the property, extortionate/unfair credit, failure to comply with the CCA, failure to comply with the FSA rules, undue influence, misrepresentation, unreasonable conduct and unfair terms.
Keeping your house
Most folks will be looking for a suspended possession order at the hearing. If an outright possession order has been made an application can be made to suspend it via the N244 form, there is a fee of £35 to do this (do not let the court fob you off with the £75 application notice fee!). Any application would need to have supporting evidence showing that the instalment + something towards the arrears can be met. If you ever breach a suspended possession order you could apply to re-suspend it although a judge may be reluctant to do this if the terms have been breached more than once.
Losing your house
Sometimes you may have to face up to the fact that keeping the house isn’t going to be possible. It is important to plan what you’ll do next. If you house has been repossessed you may be classed as being unintentionally homeless, this means you could be able to seek additional assistance from your local authority. If you wish to discuss homelessness and housing issues in more detail please consider calling Shelter on 0808 800 4444. Shelter: Home page
This post is only a very quick overview, if you would like to have some further advice please consider calling one of the debt help charities such as National Debtline or Consumer Credit Counselling service. You can also seek further advice from Shelter.
Dealing with Mortgage / Secured Loan arrears
(usually these “One Account” type setups) they are known as All monies charges. These mortgages cover “all borrowing, past, present and future”. If you fall into difficulties with this type of mortgage there are not as many safety nets in place to help the consumer, you MUST seek specialist advice as soon as possible.
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