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Revised Possession Protocol: What lenders need to know

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09/06/2015

Amendments to a number of pre-action protocols took effect from 6 April 2015 [1]. One of the protocols to be revised was the Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property (the Possession Protocol). The revisions came into force much earlier than expected and prior to notification by the Civil Procedure Rules Committee of final wording. Indeed, at the time of writing, amendments have still not been incorporated into the Possession Protocol on the www.justice.gov.uk website. Nevertheless, lenders must be aware of, and must comply with, the Possession Protocol in its revised form. Banking Litigators Justin Coley and Claire Barfield explain the key the changes and how they will affect lenders.

Key Changes

Authorised tenants

Perhaps the most significant change is the requirement on lenders, prior to issuing possession proceedings, to seek information about whether there is an authorised tenant (i.e. a tenant whose tenancy is authorised as between the borrower and lender) in occupation.

The revised Possession Protocol also codifies the steps the court will consider taking when there is an authorised tenant in occupation at the time of the hearing, as follows. The court may:

  • issue further directions for the progression of proceedings;
  • adjourn the proceedings until the tenant is no longer in authorised occupation; or
  • grant a possession order which is conditional on the tenant’s right of occupation.

(The latter point will essentially mean a lender will be prevented from enforcing the possession order and obtaining vacant possession whilst the authorised tenant remains in occupation.)

Not applicable to Buy-to-Let mortgages

The Possession Protocol now clarifies that it does not apply to Buy-to-Let mortgages.

The requirements to verify who is in occupation prior to issuing proceedings should therefore only apply to residential mortgages where the lender has authorised a letting and this may be a relatively small sample of loans.

Change of emphasis and postponing commencement of proceedings

The steps that lenders will have to take to comply with the requirement to seek information about authorised tenants are not specified in the revised Possession Protocol, but they are likely to include writing to the occupier or instructing an agent to inspect the property. Whilst these are investigations which lenders already undertake in many cases, the real impact is that lenders will face increased cost and will have to exercise increased forbearance pre-action.

This example is demonstrative of a clear change of emphasis brought about by the revisions, from a situation where starting a possession claim should “normally” be a last resort [2] and where lenders were to “consider not[3] issuing proceedings in certain circumstances, to the position where lenders are “not to consider[4] starting a claim unless litigation truly is a last resort.

The revised wording of the Possession Protocol also states that, if a borrower can demonstrate that it requires time to seek free independent debt advice or that it has confirmed an appointment with a debt adviser, then commencement of a possession claim should be postponed. Similarly, possession proceedings should be postponed if a borrower can show (ideally with evidence) a reasonable expectation of an improvement in their financial circumstances in the foreseeable future.

Information to provide to borrowers

Previously, requirements on lenders were limited to sending borrowers the National Homelessness Advice Service (NHAS) booklet on mortgage arrears. The revisions now state that lenders have a choice as to whether lenders send the “required regulatory information sheet” issued by the Financial Conduct Authority or the NHAS booklet [5]. Lenders must also now provide borrowers with the details of payments due and made for the last two years.

Where the borrower falls into arrears, the lender is now obliged to provide information on the current monthly instalments and the amounts paid “for the last 2 years“. This may catch some lenders, or their instructed legal advisors, out. This new provision does not fully align with the Practice Direction [6], which states that a lender will be deemed compliant if this information is provided to a borrower after possession proceedings have been commenced.

This information is additional to the remaining requirements to provide information regarding the total amount of the arrears, the total outstanding and whether interest has or will be added to the account and an estimate of interest or charges that may be payable.

WM Comment

The main aims of the recent changes to various pre-action protocols were to improve operation of the protocols in practice and to place a greater emphasis on the resolution of disputes by means other than litigation.

There seems little doubt that increased forbearance on the part of lenders and the more collaborative, less adversarial approach to resolution of mortgage arrears cases that has been prevalent within the retail banking industry over recent years, has resulted in a noticeable decline in arrears and repossessions. Indeed, the Council of Mortgage Lenders reported to that fact in May 2015 [7]. It is therefore to be hoped that, whilst the revisions to the Possession Protocol may slightly increase the administrative burden and up-front cost to lenders pre-action, they will assist in the continuation and growth of this trend overall, to the benefit of lenders and borrowers alike.

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[1] https://www.walkermorris.co.uk/publications/new-pre-action-protocols
[2] Possession Protocol (revised) para 7.1
[3] Possession Protocol (pre-6 April 2015) para 6.1
[4] Possession Protocol (revised) para 6.1
[5] Possession Protocol (revised) para 5.1 (a)
[6] CPR Practice Direction 55A – Possession Claims
[7] http://www.cml.org.uk/cml/media/press/4198

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