The Civil Justice Council has finally published the “Pre-action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in in Respect of Residential Property” and have done so with an array of press releases (CJC here, HM Treasury here). It comes into effect on November 19. The PM heralded it at question time in the Commons (as to which, see further below). It has considerable potential to go well beyond what has already been announced in terms of support for home owners (eg new rules on support for mortgage interest), but, unless my printer hasn’t printed it out correctly and my computer says no, it doesn’t match that potential. The suspicion must be that, behind the scenes, the parties were playing a lobbying game to reduce its significance – the final version bears little resemblance to the original consultation draft. It’s a toothless dragon.

Why was a protocol needed? Anybody who has acted for a borrower will know anecdotally that lenders have been notoriously slow and unwilling to make arrangements with borrowers, which could go some way to ameliorating the borrowers’ predicament. That chimes with what is “known” more generally about lenders’ practices.

The protocol sets out a set of pre-action principles to be followed prior to bringing a possession action. Importantly, it applies not just to first mortgagees but also second charge mortgagees and the much-maligned sale-leaseback schemes where no interest is paid (para 4.1). So, coverage is broad, which is good. The parties must “act fairly and reasonably with each other in resolving any matter concerning … arrears” (para 2.1(1)) and, as expected, the protocol encourages more pre-action contact between the parties to reach an agreement or to use the court’s time more effectively (para 2.1(2); also para 7.1). There are the usual information sharing requirements and requirements on lenders to advise borrowers to go to the local authority housing department. Additionally, there are provisions requiring lenders to consider reasonable requests from the borrower for a change of payment date (para 5.4); to respond promptly to (but notably not a requirement to consider) a borrower’s proposal for payment (para 5.5) and, if it issues a counter-proposal to give the borrower sufficient time and detail to enable it to be considered and understood (para 5.6). The parties should

take all reasonable steps to discuss with each other, or their representatives, the cause of the arrears, the borrower’s financial circumstances and proposals for repayment of the arrears. (para 5.2)

The lender “should consider” not commencing proceedings where the borrower has applied for mortgage insurance, has a “reasonable expectation of eligibility”, and can cover the excess (para 6.1). The protocol reflects existing CA learning by suggesting that lenders should hold off proceedings if the borrower has taken steps to try and sell the property (paras 6.2-4; and see eg Bristol & West BS v Ellis (1996) 73 P&CR 158). The lenders should also consider holding off proceedings for possession where the borrower has made a claim to the FOS (although it does not need to do so in theory: Mobil Oil v Rawlinson (1981) 43 P&CR 221). where it does not do so, it “should give” notice to the borrower with reasons.

Well, all of this is so hedged around that its practical enforcement is likely to be rather difficult. Even so, it is the silences as always which are significant. And the particular silence concerns the effect of non-compliance. At para 9.1, the following sanction applies:

Parties should be able, if requested by the court, to explain the actions that they have taken to comply with this protocol.

There are, no doubt, gasps at the horror of such a sanction from a lender (more likely from their representative at court) but the sanctions in the consultation draft have been written out of the final version. There is no specific costs sanction as in other pre-action protocols. There is no suggestion that the court can adjourn, strike out, or dismiss the claim as a result of non-compliance, as in the pre-action protocol on rent arrears. There are, of course, the usual general sanctions for non-compliance with protocols in CPR 3.1 and the practice direction on protocols, but it should be remembered that the lenders’ entitlement to costs is most often contractual and not subject to the discretion of the court other than in amount. It has been pointed out to me by another member of the team that it is possible to challenge the lender’s contractual entitlement through the Unfair Terms in Consumer Contracts regs, which, if successful, would bring you within the court’s discretion on costs.

Gordon Brown, in PMQs, said:

New guidance will be given to the judiciary to halt or adjourn court action on repossessions unless alternative options that help the home owner, including extending the terms of the mortgage, changing the mortgage type and deferring payment, have first been fully examined. We are determined to do everything that we can to help home owners avoid repossessions.

I don’t see it, though, in the pre-action protocol (even the Guardian correctly reports the pre-action protocol: here) – maybe he’s referring to the statutory powers under the AJA or perhaps other judicial guidance. Indeed, taken as a whole, the requirements on lenders in the pre-action protocol are not particularly significant as suggested above. The press releases certainly don’t go as far as Brown, noting generally that possession proceedings should be a last resort and that claims shouldn’t normally be made when a settlement is being explored. The CJC press release makes the following point about the purpose of the protocol:

It is designed to encourage parties to exchange information at an early stage, to encourage early settlement of cases or where that cannot be avoided, more efficient case management. It does not alter parties existing rights and obligations.

This effectively repeats the FSA’s Mortgage Code of Business rule 13.3, concerning dealing with customers fairly which deals with pretty similar requirements to those in the pre-action protocol (note 13.3.2(1)(f), which suggests that, where a repossession occurs before all reasonable steps have been taken, this will be evidence of a contravention of the rule of fair dealing in 13.3.1).

I wouldn’t want to suggest that those acting for borrowers in mortgage possession proceedings can’t seek to use the pre-action protocol in their favour, but they will have to be creative in so doing, perhaps also using the MCOB as the basis for a legitimate expectation challenge (although pursuing that will have its own challenges).

One basic question remains: why should lenders be treated differently?