Pre-Action Protocol (Residential)

Mortgage Pre- Action Protocol

The England and Wales Civil Procedure Rules set out the procedures in relation to the conduct of court actions. For some types of claim, there is a pre-action protocol, which must generally be followed before legal proceedings are initiated. A new mortgage arrears pre- action protocol was introduced in November 2008.

The parties are generally expected to follow the pre-action protocol. Failure to do so can lead to cost penalties and adjournments. The purpose of the protocol is to ensure that lenders act fairly and reasonably and to encourage more contact between lender and borrower in an effort to seek agreement.

The pre-action protocol on mortgage arrears applies to

• first charge residential mortgages regulated by the Financial Services Authority,
• Second charge mortgages over the residential property regulated under the Consumer Credit Act and to,
• unregulated residential mortgages.

There has been debate over whether buy to let loans are covered. Different views have been expressed. The Government has confirmed to the Council of Mortgage Lenders that the protocol does not apply to buy to let lending. The CML have published a recommended procedure for repossession in buy to let cases.

Pre Action Steps

Lenders must provide borrowers who fall into arrears with appropriate information including the National Homeless Advice Service booklet on mortgage arrears. They must give certain specified information regarding the make up of the arrears.

The lender should take all reasonable steps to discuss  the cause of the arrears.  The borrower’s financial circumstances should be considered. It should be considered  whether the arrears are temporary or long-term and  whether the borrower  may be able to make payments  within a reasonable time.

The lender should consider a reasonable request from the borrower to change the repayment method or dates. If the request is refused, the borrower should be given a written explanation within a reasonable time.

The lender should respond rapidly to proposals for payment made by the borrower. If the lender makes proposals for payment, the borrower should be given a reasonable time in which to consider the proposal.  The proposals must be set out in sufficient detail to enable the borrower to understand the implications of the proposals.

If the borrower fails to comply with the agreement, the lenders must warn the  borrowers by giving 15 days’ notice in writing of an  intention to start a possession claim.

Lenders ought not to start a possession claim if the borrower can demonstrate that he has submitted a claim to the insurer under a mortgage protection payment policy, can show that the claim will be processed within a reasonable time and there is a reasonable expectation of payment from the insurer and an ability to pay any shortfall not covered by the insurance

If the borrower can demonstrate that reasonable steps have been or will be taken to market the property at an appropriate price in accordance with reasonable professional advice, the lender should consider postponing starting a possession claim.

The protocol takes the view that starting a possession claim is usually a last resort. A claim should not normally be started when a settlement is still actively being explored. Discussion between the parties may include options such as:

• extending the term of the mortgage;
• changing the type of a mortgage;
• deferring payment of interest due under the mortgage; or
• capitalising arrears.

It may be agreed to let the borrower effect a sale himself. The borrower must continue to take all reasonable steps to actively  market the property where the lender has agreed to postpone starting a possession claim to allow a sale. The borrower should provide the lender with a copy of the particulars of sale, the Home Information Pack and (where relevant) details of purchase offers received within a reasonable period of time specified by the lender.

The borrower should give the lender details of the estate agent and the conveyancer instructed to deal with the sale. The borrower should also authorise the estate agent and the conveyancer to communicate with the lender about the progress of the sale and the borrower’s conduct during the process.

Starting a Claim

Where the lender decides to start a possession claim, it should inform the borrower of the reasons for its decision, at least five days before starting proceedings. The protocol states that starting a possession claim is usually a last resort and should not normally be started where settlement is still actively being explored.  Alternative options may include extending the mortgage term, changing the mortgage type, rolling up interest and capitalising arrears.

The lender should consider whether to postpone a possession claim where the borrower has made a genuine complaint to the Financial Ombudsman Service about the potential possession claim.