Tag Archive for 'pre-action protocol'

Mortgage possessions protocol

Published
by
Dave
on 23 October 2008
in Housing law
. 10 Comments

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?

Disrepair protocol costs

Published
by
NL
on 31 July 2008
in Housing law
. 6 Comments

Birmingham City Council v Lee [2008] EWCA Civ 891 concerns claimant’s costs incurred while following the disrepair pre-action protocol.

It is not uncommon for a landlord to do repairs after an early notification letter, or letter of claim, but pre issue (not that common, but not uncommon). This leaves the claim as for damages only. Where repairs are outstanding, the small claims limit is £1000 in damages or cost of works. But a damages only claim hits the usual £5000 limit. There are the small claims unavailability of costs consequences, and there is no public funding for small claims. Thus, doing the repairs would often kill a disrepair claim. In the meantime, costs would have been racked up following the protocol steps - which are necessary, with a potential costs penalty for not doing so.

Lee decides that, given the nature of the protocol, a claim begins at the start of the protocol steps, not at the commencement of litigation. Pursuant to CPR 44.9(2), the Court has the power to make a costs order for pre-allocation period, unrestrained by the limitations of whatever track the claim is allocated to.

Where a claim at pre-action protocol stage would be a fast-track claim (works not done), the Court can make an order that the Claimant have their costs, up to the date of the works being done, at the fast-track rate. This is still subject to establishing notice, liability etc., so will likely be ordered as costs in the cause.

The Claimant should apply for such a costs order with allocation questionnaires.

Now, although this leaves the claim ongoing as a small claim, with the remaining costs issues that this implies, it does mean that:

a) the principle is established for the purposes of negotiating costs in settlements, even pre-issue. There is the stick of a threat to issue and seek the costs order to use.

b) depending on the specifics of the case, it may be possible to continue a case that was initially publicly funded on a CFA basis, once it turns into a small claim. The statutory charge for the pre-action period should be covered by the pre-action fast-track costs order, meaning that the client’s damages won’t vanish into the statutory charge. But that is going to take careful evaluation of the client’s benefit.

Mortgage possessions - Gordon feels your pain

Published
by
NL
on 10 May 2008
in Housing law
. 13 Comments

Mortgage repossessions are rising at the fastest rate since 1991. According to the MoJ quarterly figures [pdf]:

  • Possession claims in the first quarter of 2008 were 38,688, 7% more than in the last quarter of 2007. The rise over the last year was 16%.
  • 27,530 mortgage possession orders were made on a seasonally adjusted basis, 17% higher than in the first quarter of 2007 and 9% higher than in the fourth quarter of 2007. 
  • 47% of mortgage possession orders were suspended compared to 47% in the first quarter of 2007 and 46% in the fourth quarter of 2007.

Caroline Flint and the Chancellor announced a £10 million package of measure to ’support homeowners facing difficulties with their mortgage’.

This package includes measures to ensure that financial advice and support is available for borrowers who may need it and includes an additional £9 million extra funding for face-to-face debt advice provided by third sector partners including Citizens Advice Bureau.

Let us unpick this a little. That is £9 million over three years, so £3 million a year to ‘third sector partners’. Citizens Advice claims advice is provided at 3000 locations, so, if equally distributed, that is £1000 per location. Of course, it won’t be equally distributed - some will be used centrally or for training and I would be surprised if certain bureaux weren’t targeted, particularly those that run Court advice, but it doesn’t actually look like much.

The other £1 million (over three years!) is presumably to fund the other promises:

  • expanded access to free legal representation at county courts throughout England for households at risk of repossession;
  • strengthened National Housing Advice Service to provide a new comprehensive debt advice service
I take this to mean a bit more support for duty scheme possession solicitors. Does anybody know about the ‘National Housing Advice Service’? It has slipped beneath my radar, or do they mean Community Legal Advice?
The press release adds that this £10 million
builds on the services already in place, backed by £560 million Government investment, such as face to face debt and financial advice, a national debt helpline, homelessness prevention work by every council, legal aid, and financial support for low income households who may face short-term difficulties in repaying their mortgage.
Uh huh. Few mortgage repossession cases are eligible for legal aid. Council ‘homelessness prevention’ is hardly of use and ‘financial support’ amounts to limited payments of interest only, after six months of eligibility.
The government is also talking to the main banks on avoiding repossessions. However, my anecdotal experience, also reported by Shelter, is that it is sub prime mortgagees, second mortgagees and secured loan holders who are pushing for repossessions, often with relatively low amounts at stake. Given the great frenzy of cashing in equity over the last few years, this could present a very large ongoing problem.
Meanwhile, the Civil Justice Council are consulting on proposals for a mortgage possessions pre-action protocol. The consultation paper is here [pdf] and the consultation ends on 23 May 2008.