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Mortgage Repossessions: What you NEED to know

Having recently started taking on cases of my own as a freelance advocate, I've realised that in practice, mortgage repossessions are significantly more prominent than one would first imagine them to be. It is because of this fact, and because many of our readers either are homeowners or want to get onto the property ladder, that I thought an exploratory article on the subject would be useful.

Many mortgage providers see litigation as a last resort and would much prefer to have some form of agreement in place with their customer. The arguments in support of this particular approach are that there is a greater degree in flexibility to make an arrangement and any chance of maintaining a relationship with the customer is likely to be non-existent after such litigation taking place.

Under section 103(ii) Law of Property Act 1925, actions can be brought against homeowners who have arrears that are the equivalent to two months' worth of their monthly payments. This in itself is quite a striking piece of information. Considering that many mortgages run for a period of 25 years, this is a rather lower threshold that needs to be surpassed in order for possession proceedings to be brought.

Section 36 Administration of Justice Act 1970 outlines that the Court can either: a) adjourn proceedings, or b) suspend, make a stay of execution or postpone delivery of possession, for such period as the Court thinks is reasonable. The Court will only do this where it appears that the borrower is likely to pay any sums due under the mortgage, within a reasonable period.

Section 8 Administration of Justice Act 1973 amended section 36 of the earlier Act, which created problems around a particular phrase: "any sums due". The issue with section 36 was that "any sums due" was argued to be the entire redemption figure of the mortgage. Section 8 addresses this by stating that where the borrower is entitled or permitted to pay their mortgage by instalments (or is able to defer payment either in whole or in part) but provision is also made for earlier payment should the borrower default, then the Court will hold that it is not necessarily the entire redemption money that is due, but only those instalments that should have been paid by the hearing (in this case, the missed mortgage payments).

Section 8(2) Administration of Justice Act 1973 places an extra evidential burden on the borrower. The Court must be satisfied not only that the borrower is likely to be able to pay any amounts regarded as "due" within a reasonable period, but also that they are likely to be able to pay any further amounts that would have expected to be required to pay. Essentially, the borrower must demonstrate an ability to maintain the current monthly instalment of their mortgage together with an additional amount towards the arrears.

This seems straightforward, but the big question arises: "What is the reasonable period?". There is case law on this matter, and the leading precedent is that of: Cheltenham and Gloucester Building Society v Norgan [1996] 1 All ER 449. In this case, the Court of Appeal stated that the starting point for the reasonable period is the full term of the mortgage. They must then ask whether the borrower can pay off the missed payments during that time. There are of course, factors that play a part in dictating whether the reasonable period should be the entire mortgage term. These include, but are not limited to:

  • How much can the borrower reasonably expect to pay towards the arrears, apart from the agreed instalments of interest;

  • The reason for the arrears that have accumulated; and

  • How much remains of the original term.

The test under these sections is therefore: whether the borrower can show on the balance of probabilities, that they are likely to be able to maintain their current monthly mortgage instalment plus a monthly amount towards the arrears which will clear the arrears within a reasonable period.

To conclude, it is apparent from the relevant legislation and case law that the threshold for taking homeowners to court and repossessing their homes for being unable to pay their mortgage is quite low. It is because of this, extra care should be taken when deciding whether to mortgage a property and what contingency plans are in place in the event that certain events were to unfold.

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