By the end of 2020 in the UK, there were approximately 80,000 homeowners with arrears. Less than 2,000 homes were repossessed in 2020 largely due to the COVID crisis and protections put in place by the government to assist homeowners who were in a position through no fault of their own of not being able to pay their mortgage.
For some though the time will come when there is no realistic prospect of being able to afford a mortgage or clear existing arrears leading to a lender seeking possession of a property.
Whilst it may be inevitable there are ways to manage that process so that a homeowner can get sufficient time to admit the inevitable will happen and prepare for it.
That is what we are going to look at here. The potential to lose your home, often a family home is not an easy event to deal with. It puts a strain on you, and your relationships and makes you feel like a failure when often it is an unavoidable set of circumstances not you is what leads to repossession.
This guide takes account of the differences between Scotland and England/Wales.
Lenders each have different views and processes on when to start the legal process of taking possession of your home. The process wherever you are in the country is fairly lengthy. From the point of applying to a court for an order for possession of a property to actually having a date for possession to take place is going to mean several months of process on the part of the lender. Possibly longer depending on how busy the court is.
Whatever the policy is for a lender, none can start the court process until a customer has missed at least two payments and it is likely the majority will not start possession proceedings that soon. So worst case, it takes 3 months after missing two payments to get in front of a judge and ask for permission to take possession. There is an expectation that 5 months will be missed at that point which leaves less doubt an order for possession of the property will be granted.
So where possible try and slow the process. For example, if the lender starts the process after missing two payments then ask yourself if you could make 50% of the payment each month. This means it will take 4 months before you have actually missed the equivalent of two payments. So you have delayed the process for two months and even more for those lenders that don’t begin the process at the earliest moment.
If you can make some payments each month it may mean that you are more than two months in arrears but trying to deal with it. A court will always favour the homeowner over the lender if you give them a reason to believe you can clear the arrears.
Right up to the court date where a judge looks at your case, you have the opportunity to reduce the arrears below two months and force the lender to withdraw the case. No Judge will approve an order for possession if there are less than two months of arrears outstanding. Many lenders will withdraw the case, wait until the arrears are higher and start again.
It all means you get more time.
Ask yourself what you are fighting for and is it realistic. Choose one:
- Do you believe there is a chance you can clear the arrears and start paying in full each month?
- Are you simply trying to delay but know you will not be able to start paying again?
If you going for option 1 then fight as hard as you can to delay the process and try and fix the situation.
On the other hand, if you know your position is firmly option 2 or you were at option 1 and now believe you cannot go any further and have fallen into option 2 then you need to be realistic and think about what to do next.
Delays in the process ultimately cost you, not the lender. Every time the repossession process is started, every time a court date is given, there are costs associated with this. The lender is placing all of the costs on your mortgage account to be recovered where possible once the property has been repossessed and sold.
If After possession your only option is social housing then you will need to allow the process to get as far as receiving the date of the actual possession. Without this, no housing authority will consider you homeless and therefore not be willing to offer any speedy assistance. It will however be useful to contact them as soon as possible to understand the process.
The process for a lender to take possession of a property in Scotland is detailed below. This should be considered a ‘normal’ route to possession without delay or diversion and assumes your lender will start the process immediately after missing 2 payments.
You will receive a letter from the lender advising of the 1st payment missed on your mortgage and requesting a payment be made to bring your account up to date to avoid court proceedings. It should offer help and provide advice on what you can do and other organisations you could contact for assistance.
This letter may come from the lender or their solicitor advising of the 2nd missed payments and giving you at least 7 days to bring payments up to date or repossession proceedings will start.
After the period of time stated in the 2nd letter, you will receive a notice of default. This will ask that you pay all of your arrears within a set time period (30 days) or an application will be made to the court to start proceedings.
A calling up notice must be issued. It is a document that effectively terminates the mortgage agreement and states that you must repay the entire amount outstanding. Yes, that means the full balance plus arrears and any costs incurred.
Usually, you are given two months to pay the amount, it can be shorter but never less than one month. For it to be less than two months there must be an exceptional reason that it needs to happen sooner.
Apply for a court order and serve you with an initial writ
An alternative to the calling up notice will be to move straight to court action. The lender will make an application to the Sheriff Court and you will receive what is called a section 24 notice along with an initial writ.
Section 24 notice simply tells you that you are in arrears and what the amount is. It is informing you that the lender is seeking an order for possession of your home and informing you of your rights.
The important right you have is to be heard in court and attempt to stop the possession (or delay it) as well as other information such as seeking advice, voluntarily surrendering your home and so on.
Along with a section 24 the initial writ will set out the lenders case and will include:
- What the lender is asking the court for. In this case a possession order.
- The facts of the case will be that you have defaulted and missed payments.
- Proof of the arrears on your account.
An important point at this stage is that when you are served with a section 24 notice, the lender must also send a section 11 notice to your local authority telling them that they are applying for possession of your property and that you could be homeless.
Each local authority has different policies. Some have the means to stop the repossession, others can offer you housing and unfortunately, some can do very little with the resources they have available.
Once a court date is available you will be able to go to the hearing and make your case, assuming you have one. The worst possible decision you can make is not attending, that is unless you have accepted the possession will happen and want, however reluctantly to proceed.
A Sheriff will want to know what you have done to try and clear the arrears or if there is any way you will be able to clear them. He/She will also want to know whether you have somewhere to live if possession takes place, if not, how long it will take to find accommodation.
The court favours the homeowner over the lender always, that is unless you offer nothing to the court to help them, help you.
If you have made an arrangement or broken one, not made any attempt to clear the arrears, have no hope of being able to or don’t even turn up to the hearing then you can assume the possession order will be granted.
On the other hand, if you are trying, or have a convincing plan to get out of arrears then expect a Sheriff to deny or at least delay the granting of an order for possession. There are generally three options open to the Sheriff.
- Dismiss the case. Likely as the correct process has not been followed or the lender does have the right to possession.
- Continue the case. Allows more time for information, a payment plan to be set up or the arrears cleared by an agreed date. This does not mean the case is dismissed, just delayed. Provided you keep to the payment plan or clear the arrears by a specific date the case will be dismissed. Otherwise, the lender will request a further hearing to advise the court of what hasn’t happened.
- Grant an order for repossession. A date will be set by which time you must have vacated the property.
Assuming an order is granted the lender will ask the court to set a date for the order to be executed. You will receive a letter from the court stating the date and time this will happen. In Scotland, an eviction cannot take place on a Sunday, a Bank holiday and must be between the hours of 8 am and 8 pm.
On the day of eviction, two court representatives will call at your property, at least one will be a Sheriff’s officer who is able to enforce the court order. The lender will arrange for their agents to attend at the same time with the intention of changing the locks, removing perishable items such as food, turning off the water, gas and so on.
If you are not at the property at the time and date stated and have not provided keys then the lender’s contractor will force entry with permission of the sheriff’s officer. Once inside the property, the Sheriff will consider the order for possession complete and it is now under the control of the lender. You have no right to enter the property from this point.
Should you still be on the property the Sheriff will insist that you leave, if you do not the police will be called and entry will be forced in order to remove all occupants.
Where you have not been able to clear the property of all belongings you can arrange with the lender’s contractor on the day of possession to come back within a reasonable period (usually 14 days) to recover them under supervision. If you were not present at the eviction, a notice will be attached to the front door with contact details for the contractor.
The lender must do its best to sell the property in a reasonable time and for the best price, it can obtain. The lender is not however under any obligation to only sell above a certain level even if this means there will be a shortfall.
Assuming the property is sold and there is a surplus available to you then the lender’s solicitors should be in touch soon after the completion of the sale to discuss where to send the excess funds.
If the property is sold and the full amount due to the lender is not covered then you will remain liable for the shortfall. The recovery process can be quite confusing, especially around the length of time you can be pursued for the shortfall.
There are rules in place for this. Ultimately the timeframe is determined by a specific area of law known as the Prescription and Limitation Act 1973. There are views, legal ones that lenders can have up to 5 years but as long as 20 years to recover a shortfall.
The Financial Conduct Authority (FCA) that regulates mortgage lending simply states the following
A lender does not have to collect a mortgage shortfall debt, but if they do, they must tell you in writing within 5 years of the date your home was sold.
So this introduces two issues for anyone with a shortfall. The first being is that after the sale of the property you will know if there is a shortfall but you may need to sit waiting for that ‘knock at the door’ for the next 5 years before knowing whether the lender will attempt to recover it.
The second issue is that you may be pursued for up to 20 years depending on what law is used to determine how long the shortfall can be pursued.
Realistically the lender has just taken possession of your home, if you had money you would have paid the arrears and not allowed the possession. The lender knows your position and whether there is any realistic prospect of recovering the shortfall in the short term. If there isn’t, many pass the debt out to collection agencies
Some collection agencies will simply sit on the debt for several years. Waiting for you to get ‘back on track’, then before the 5 year period is up, a letter will arrive starting the collection process and years of collecting!
So there we are a fairly simple but clear view of the process from start to finish. Not going to be a favourite article for anyone to read but arrears and possession happen, they always will, unfortunately.