Mortgage arrears
This section contains useful information for people with mortgage
arrears or debts secured on their home.
●
Getting behind with mortgage payments
●Contact your lender if you have problems
●FSA rules and the Mortgage Code
●
Help towards paying your mortgage
●Arranging to pay off the arrears
●What if I can’t afford my mortgage?
●
What if my home is not worth enough to repay the mortgage?
●Mortgage shortfalls
●
What should I do if I have a mortgage shortfall?
●Second mortgages or secured loans
●
What is a ‘time order’?
●Secured overdrafts
●
What if my mortgage lender takes me to court?
●The Debt Arrangement Scheme and your mortgage
Mortgage arrears are very important because you could lose your
home if you do not pay them off.They must be treated as a priority
debt.
Getting behind with mortgage payments This section is for people with mortgage arrears.You may have a first and second mortgage.
● The first mortgage is the loan you took out to buy
your home.
● The second mortgage (also known as a secured loan,
further advance, second charge or sometimes a
consolidated loan plan) is a separate loan which is secured on your home.
Check all your loan agreements to see if they are ‘unsecured’ or ‘secured’ on your home. If they are secured loans, treat them as priority debts because lenders can ask the court for possession of your home if you cannot pay your monthly instalments.The property can then be sold to pay off your debt.
The legal term for the company or building society who gave you your mortgage is a ‘mortgagee’. In this pack we call them ‘lenders’.
Contact your lender if you have problems It’s never too early or too late to contact your lender.You may not be behind yet or your lender may have started court action.Whatever the situation,do not delayin contacting
your lender. Get in touch as soon as possible by writing, phoning or making an appointment to see them.
If the local office is unhelpful or difficult, contact their head office and try to reach an agreement with them.
If you have not paid the mortgage for a number of months, it’s very important that you start paying what you can, even if you can’t afford the full monthly payment.
FSA rules and the Mortgage Code
Most lenders are now regulated by the Financial Services Authority (FSA).The FSA rules say a lender must ‘deal fairly with any customer who is in arrears’. The rules also need
a lender to:
● have a written policy on how to deal with customers
in arrears;
● set up a payment plan which is practical in our
circumstances and which covers the rest of the term of your mortgage, where appropriate;
● send you regular information about your arrears; and ● not put pressure on you through too many phone calls
or letters.
If you think you are being treated unfairly by a lender, you can complain to the Financial Ombudsman Service.The contact details are at the back of this pack.
More information
The FSA rules have now replaced the Mortgage Code but you may still be able to complain to the Financial Ombudsman Service under the Mortgage Code if your mortgage was taken out before 31 October 2004 andyour
complaint is about events that took place before this date.The Mortgage Code included a commitment to consider all cases of financial difficulty and mortgage arrears sympathetically and positively. If you want more information about the Mortgage Code,contact us for advice.
Help towards paying your mortgage
Increasing your income
You may be able to claim other benefits such as Income Support, Pension Credit, Jobseeker’s Allowance,Working Tax Credit and Child Tax Credit. See page 7 for information on
increasing your income. Contact your local Department
for Work and Pensions office or local advice centre for more information or contact us.
Mortgage payment protection insurance
Check that you have claimed under any mortgage payment protection insurance you may have.This is particularly important now that you can get less help with your mortgage payments from Income Support, Pension Credit and
Jobseeker’s Allowance. If you are turned down by the insurance company,contact us for advice. Mortgage rescue schemes
Some lenders offer mortgage rescue schemes.These involve buying back your home so that you become a tenant, or part-rent and part-buy schemes. (These are also known as shared ownership schemes).
Mortgage rescue schemes are rare. Contact your lender to see if they run a scheme.You can also ask Communities Scotland about the new mortgage to rent scheme.
Mortgage to rent
The Scottish Executive runs a scheme offering more help to people with mortgage debt problems. Under the mortgage to rent scheme, eligible homeowners have the option of selling their home to a social landlord.The scheme is administered by Communities Scotland.
Who can apply?
You can apply if:
● the house is your sole or main residence; ● you have the agreement of any joint owners;
● there is a reason why it is important for your household to
remain in the area, for example, for your job;
● you can demonstrate that you are unable to sell your house
and buy a cheaper one nearby;
● there is no legal action preventing the sale of the house,
such as an ‘inhibition’ against a sale.
Who cannot apply?
You cannot apply if:
● you are under 60 and you and your partner have over
£8,000 capital (or are over 60 and have more than £12,000). Capital does not include personal possessions, personal pensions, equity in your home and the surrender value of life policies or endowments linked to the mortgage;
● you have lived in the house for less than 12 months; ● the value of your house is higher than the average for your
local authority area;
● your house needs more than £6,000 repairs.
If you are eligible for assistance, the new landlord will pay you the open market value for your home, (less the cost of any necessary repairs).The proceeds of the sale will be used to pay off all secured loans.You are responsible for any shortfall. You will normally have the right to buy back the house after five years. However, this can be restricted in certain areas where there is a shortage of social housing.
For more information contact Communities Scotland.You can find their address on page 59.
Help from Income Support, Pension Credit or Jobseeker’s Allowance
If you claim income-based Jobseeker’s Allowance, Income Support or Pension Credit, the Department for Work and Pensions (DWP) will normally pay at least some of the interest on the mortgage if you took the mortgage out to buy your home.The following rules apply.
● From December 2004, mortgage interest is paid at a
standard rate set by the Government and based on the Bank of England base rate, not at the rate you actually have to pay. If your interest rate is less than 5%, there are special rules that may apply to you.Contact us for advice.
Mortgage arrears
● All mortgage interest payments are sent directly to your
lender by the Department for Work and Pensions (DWP), unless your lender is not part of the scheme agreed with the DWP.
● You can only claim interest on the first £100,000 of your
mortgage, unless the extra was taken out to adapt your home for someone with a disability.
● There is no help with payments towards the original
amount you borrowed (capital) on your mortgage or any endowment policies, or with any interest on arrears built up during the waiting period of your claim (see below).
Existing Borrowers
If you took your current mortgage out before2 October
1995, you will generally have to wait eight weeks before getting any help with mortgage interest payments when you claim.You will then only get half of your mortgage interest
paid for the next 18 weeks (four months) of your claim.After this, you will have your mortgage interest paid in full.
New borrowers
If you took out a new mortgage, or remortgaged,after
2 October 1995, you will generally get no help at allwith
mortgage interest payments for the first 39 weeks (nine months) of your claim.You will then have your mortgage interest paid in full.
Special rules
If you or your partner are aged 60 or over, the Department for Work and Pensions will pay the interest in full immediately with no waiting time as part of your claim for Pension Credit. You will be treated as anexisting borrower and not have to
wait the full nine months if:
● you don’t have to sign on because you are caring for
someone who is sick;
● you have had a mortgage protection insurance claim refused
because of pre-existing illness or HIV- or AIDS-related illness;
● you are a prisoner on remand; or
● you have a child living with you and you are claiming Income
Support because your partner has died or has left you and is not providing any kind of financial support.
Other help from Income Support, Pension Credit and Jobseeker’s Allowance
You may also claim Income Support, Pension Credit or Jobseeker’s Allowance for the interest on the following.
● A loan that was used for home repairs and improvements.
You will still have the same waiting periods (see above). Only certain repairs and improvements count, such as adapting your home for someone with a disability. If your claim is turned down, you can appeal against the decision.
Contact us for advice on whether it is worth appealing.
● A mortgage which is in somebody else's name, if they are
not paying and you have to pay the mortgage in order to keep your home.The Department for Work and Pensions
will decide if it is ‘reasonable’ for you to pay. If you are in this position,contact us for advice.
● A new mortgage with any lender for the same amount or
less than your existing mortgage as long as this is the only remortgage since 2 October 1995.This rule applies from 28 November 2004.
● Other housing costs such as some service charges.
What will Income Support, Pension Credit and Jobseeker’s Allowance not help with?
You cannotnormally claim for help for:
● the full interest on a remortgage for more than the original
loan that was used to buy your home, unless the extra was used for certain home improvements (see above);
● a mortgage or secured loan if the money was used to pay
off other debts, fund a business or buy a car or holiday;
● interest on a larger loan taken out while you are on Income
Support, Pension Credit or Jobseeker’s Allowance or within 26 weeks of coming off benefit (only the interest up to the amount of your original loan will be covered);
● if they decide your housing costs are too highbecause
your home is larger or more expensive than you need; or
● the full interest on a mortgage if you have adults living with
you who are not part of your household.The Department for Work and Pensions calls them ‘non-dependants’ and will usually take off an amount from your mortgage interest payment depending on the circumstances and age of your non-dependants.The non-dependant is then expected to make up the difference. In some circumstances no non-dependant deduction will be made (for example, if you or your partner are blind or receive Attendance Allowance or Disability Living Allowance because you need care).
Contact us for advice.
Warning
If you are on Income Support
If you have been on Income Support continually from before 2 October 1995, the amount of help you receive is protected. This is called ‘add back’.This rule is complicated and the help you receive can disappear over time.Contact us for advice.
If you have more than a 12-week break in your claim from August 1999, you will lose your protection and your housing costs.Any new claim for benefit will be paid under the new rules.
What else can I do if I am on Income Support, Pension Credit or Jobseeker’s Allowance?
If you are in arrears and your lender is threatening to take court action, you should take the following steps.
● Ask your lender if they will accept direct payments if they
do not already receive them.
● Get a complete breakdown of how your housing costs have
been worked out by the Department for Work and Pensions (DWP) if your full mortgage is not being paid. Make sure you know how much you have to contribute for
the capital or endowment part of your mortgage.You may also have to pay towards the interest on your mortgage if the standard rate the DWP pay is less that your actual interest rate.Your lender may expect you to make up the payments from your benefit.There may be deductions being made because of non-dependants living with you. Check these deductions have been made correctly by contacting your DWP office or contact us for advice.
● Tell your lender if you are on Income Support, Pension
Credit or Jobseeker’s Allowance.
● Most lenders are now regulated by the Financial Services
Authority.The FSA rules have replaced the Mortgage Code but you can still complain to the Financial Ombudsman Service under the Mortgage Code if your mortgage was taken out before 31 October 2004 and your complaint is to do with events before that date.
Remember
Standard-rate interest
Mortgage interest is paid at a standard rate set by the Government, not at the rate you actually have to pay.All your interest may not be covered unless your interest rate is less than the standard rate.
If the head office will not agree to stop court action,contact us for advice.If the lender takes you to court, see What if my mortgage lender takes me to court? on page 44.
Got a question?
Help with mortgage interest
If you are not sure that you are getting all the help with the mortgage interest that you should, contact a local advice agency or contact us for advice.You may be able to appeal
against the decision of the Department for Work and Pensions. Arranging to pay off the arrears
Warning
Don’t take out an extra loan
Don’t be tempted to take out an extra loan to repay your mortgage arrears. Often these are very expensive and could put your home at greater risk.Contact us for advice.
You will usually have to offer an extra monthly payment to clear the arrears. Lenders will sometimes ask for the arrears to be cleared over 12 to 24 months.Ask for a longer time to pay the arrears if you cannot afford to do this. If you cannot manage to clear the arrears within the time the lender wants, start paying the amount you have offered anyway. Explain why you can’t pay the amount they have asked for, particularly if there are circumstances such as a long-term illness, birth of a child, relationship breakdown or unemployment.
If the value of your home is far more than the total mortgage, tell the lender.The more your house is worth, the less risk your lender is taking.
If your home is not worth as much as the mortgage, see the section on page 42.
Other arrangements you could consider Sometimes your lender may agree a different arrangement. Some of these are set out below.
Adding the arrears to your mortgage
This is called ‘capitalising’ the arrears. Normally you can only do this:
● on first mortgage arrears; and
● if the value of your property is a lot more than the total
amount of your mortgage.
It works as follows.The amount of the arrears is added to the total mortgage.The monthly repayments are increased to take account of this. So the arrears are spread over the years you have left in your mortgage term.
Your lender may be more likely to agree to this if you have already kept to a payment agreement for some months, because this shows you are able to pay.
Changing to a repayment mortgage
If you have an endowment mortgage, you may be able to change this to a repayment mortgage. Endowment mortgages include an insurance policy. If you have had this policy for a few years it may have a surrender value.The surrender value is the amount of cash the policy is worth if you cancel it. Ask your lender about this and get independent financial advice on whether:
● it is a good idea to cash in or sell your endowment
policy; and
● changing to a repayment mortgage will reduce your
monthly payments.
There are also other companies in the market who will buy insurance policies at higher rates than the insurers will pay in surrender value. If you decide to sell and the policy is ‘assigned’ to your mortgage company, you must ask them to release it before you can cash it in. If you cancel your
endowment policy, ask your lender about mortgage protection insurance.This would pay the mortgage if you died.
If you do change to a repayment mortgage, you could also ask your lender to extend the mortgage term (see below).
Warning
Get financial advice
If you are thinking of cashing in your endowment policy or changing to a repayment mortgage, you should always get independent financial advice. For a list of independent financial advisers in your local area contact the IFA Promotions office. The number is listed on page 60.
Mortgage arrears
Increasing the mortgage term
Most mortgages are spread over 25 years – this is called the mortgage term. If you have already lived in your home for several years, you could ask your lenders to extend the term back to 25 or even 30 years.This could cut the monthly payments so that you could afford to pay something towards the arrears each month. If you have an endowment mortgage, this may be more difficult.Ask your lender.
Paying off the interest only
If you have a repayment mortgage, you could ask your lender to accept a monthly payment which covers only the interest part of the normal monthly payment.This will probably have to be a temporary arrangement. If you already have arrears, your lender will expect small monthly payments off the arrears as well.
What else can I do?
You should make sure that you are getting all the help which is available.You may be able to claim Income Support, Pension Credit, Jobseeker’s Allowance,Working Tax Credit or Child Tax Credit (see page 7). Contact your local Department for Work and Pensions office for more information, or contact us for advice.
What if I can’t afford my mortgage?
Many people find that because their mortgage is high or their income has fallen, they can’t pay the monthly instalments. If you are in this situation:
● explain the problem to your lender; ● pay what you can afford; and
● look for ways to increase your income.
Handing back the keys
Remember
Handing back keys
You may be thinking about handing the keys back to your lender or selling your home.Contact us for advice.This
may not be a good idea.
If you give your home back to your lender, you will still be charged the monthly instalments on the mortgage. If you do not pay, the lender will add the instalments to the debt you owe when the house is sold.They can also add extra interest on to the arrears figure.The monthly instalments will only stop being added when your lender sells your home.This could take a long time.The lender will probably add solicitor’s and estate agent’s fees and any court costs on to the bill. Your lender will probably get a lower price for the house than if you sold it yourself. It is harder to get a buyer for an empty house. Empty houses are more likely to be vandalised or damaged.
If you give up your home and ask your council to rehouse
you, they will probably say that you have made yourself ‘intentionally (deliberately) homeless’ and refuse to offer you anywhere to live.Contact usbefore you do this. See
Getting rehousedon page 58.
Selling your home
If you are thinking of selling your home, you need to think about where you will live.
● Can you ‘trade down’ by selling your home and buying a
smaller property?
● If you sell your home and ask your local council to rehouse
you, they will probably say you have made yourself
intentionally homeless and refuse to offer you anywhere to live. See Getting rehousedon page 58.
● Look at renting from a housing association as an option. ● Private renting may be an option but you need to be careful
about the type of tenancy you are offered and how high the rent is. Sometimes if you claim Housing Benefit (rent rebate) your council can decide that your rent is too high and restrict the amount of benefit they will pay you.
● You may have relations or friends that you can live with, at
least temporarily.
Contact us before you put your home on the market. See
Getting rehoused, on page 58.
What if my home is not worth enough to repay the mortgage?
If your home is not worth enough to repay the mortgage in full, this is often known as having ‘negative equity’. If you have negative equity, your options can be limited.Your lender should consider allowing you to sell your home yourself under the FSA Mortgages: Conduct of Business Rules.
For a fact sheet on Negative equity,
call National Debtline on 0808 808 4000.
If you hand back the keys or your lender repossesses, they will sell the property. If your home is not worth enough to repay your mortgage, your lender can ask you to pay the difference. This is usually called a ‘mortgage shortfall’ (see below). Mortgage shortfalls
When you bought your home you may have made a one-off payment to your lender for indemnity insurance.This is known as a mortgage indemnity guarantee. From 31 October 2004 these are known as ‘higher lending charges’ under the FSA rules.This means that if the lender repossesses and sells your home for a price which does not clear your debt to them, they can claim any loss from an insurance company.
Warning
Indemnity policies
The indemnity policy is usually insurance for your lender, not for you.The insurance company can ask you to pay them what they have paid out to the mortgage lender.
● The indemnity policy may only cover the lender’s loss to a
set limit. So, if your debt is much bigger than the sale price of your home, you may still owe something to the lender, as well as the insurance company.
● The lender and the insurance company often club together
and one company will chase you for the whole debt.
● Most second mortgages are not covered by an indemnity
policy. Even if you repay your first mortgage from the sale, you may still owe something to your second lender, as well as the insurance company.
● The insurance company can ask you to pay them what they
have paid out to the mortgage lender.
Indemnity policies often vary, so contact your lender to find out whether you have paid for a policy and what its terms are. What should I do if I have a
mortgage shortfall?
Warning
After five years
If the lender first contacts you over five years from the date your house was sold, it may be too late for them to recover the debt. Before getting in touch with the lender,contact us for advice.
You have options on how to negotiate with the lender. You could:
● make an offer of payment; or
● ask the lender to accept a small lump sum and write-off the
rest, (this is called an offer in ‘full and final settlement’). They could:
● reject your offer, and take you to court to set a level for
you to pay;
● claim on their indemnity policy if they have one; or ● ask for you to agree to a legal charge (a type of mortgage
to ‘secure’ the debt) if you have bought another home. If you are in a rented home and have no assets (valuable goods or savings), explain this to your lender or the insurance company.They may decide not to take any further action. For a fact sheet on
Mortgage shortfalls,
call National Debtline on 0808 808 4000.
Second mortgages or secured loans
You may have a second mortgage or secured loan. Even if you are paying your first mortgage in full, if you don’t keep up with payments on the second mortgage, you could lose your home. Second mortgages tend to be at higher interest rates than first mortgages and run for shorter periods, for example, five or 10 years.This makes them expensive and also means that the monthly payments will be higher.
● If your home is worth more than your mortgage, it may be
worth asking your first lender if they could offer you a remortgage.This means giving you one new mortgage instead of the two you already have.This may be helpful as the new monthly mortgage payment should be cheaper than the two previous payments added together. Before signing any agreement,contact us for more advice.
● You may be able to claim Income Support, Pension Credit
or Jobseeker’s Allowance to cover the interest on a second mortgage, if it was for certain home improvements. See
Help from Income Support, Pension Credit or Jobseeker’s Allowanceon page 39.Contact us for advice.
● If your second mortgage company takes you to court, see
What if my mortgage lender takes me to court?
on page 44.
● Some lenders charge very high interest rates or have
contracts with a higher interest rate if you miss payments. You may be able to argue this is an unfair contract term. Contact your trading standards department or contact us for advice.
What is a ‘time order’?
With some secured loans you can apply to the court for a ‘time order’. Courts do not make time orders very often, but may be more likely to help following a recent court decision. A time order may help if you have a secured loan at a high rate of interest and large monthly instalments you cannot afford. It is also useful where goods have been purchased on hire purchase.The court has the power to reduce the monthly payments, extend the term of the loan, and change the interest rate.
A court has the power to make a time order if:
● the amount you originally borrowed was less than £15,000
(on agreements taken out onorafter 1 May 1998, the limit
is £25,000);and
● the lender has ‘called in’ the loan.This means they have sent
you a ‘default notice’ demanding you pay the full amount you owe within a fixed period of time.
Even if a creditor takes court action you can still apply to the court. However, if you have already had a ‘time to pay direction’ granted by the court, and you have not kept up payments,you are not allowedto apply for a time order.
Mortgage arrears
You should get advice from a local advice centre or solicitor who will assist you in completing the necessary forms, which are available from your local sheriff court.Extra help
Can’t afford to pay your secured loan?
If you can’t afford the full monthly payment on your secured loan and think you may be able to apply for a time order,
contact us for advice.
For a fact sheet on Time orders,
call National Debtline on 0808 808 4000.
Secured overdrafts
You may have a bank overdraft secured on your home (for example, because you have a small business).This may have high interest charges and no fixed monthly instalment to pay. If you have an overdraft secured on your home,contact us for advice.
If a bank is asking you to agree to secure an overdraft on your home, see Debts with your bankon page 30.Contact us for advice.
Warning
Beware of consolidation loans
Beware of advertisements in newspapers and on television offering loans to clear all your debts (often called
‘consolidation loans’).They are often very expensive and will put your home at risk.
What if my mortgage lender takes me to court?
You cannot be evicted from your home without a court order. If you have left your home voluntarily, the lender might be able to take over the house and sell it without going to court first. Court procedures are the same for first and second mortgages (secured loans), so the following advice applies to both.
Before the hearing
These are the usual stages leading to action in the sheriff court.
● When you have mortgage arrears, the lender will write
asking for you to pay them. If you have not already contacted your lender, do so now and try to reach an agreement.
● If you don’t contact your lender to agree an arrangement to
pay the arrears, they will write again.They may refer the matter to their solicitor who will write to you.Contact the solicitor and try to negotiate a way to pay the arrears.If the solicitor rejects your offer, you can insist
that they tell the lender about your offer. Or, contact the lender’s head office directly yourself to try to reach an agreement. Even if your lender refuses your offer, start paying the amount you have offered anyway.
Court papers
If you are unable to reach an agreement with your lender, it is likely that they will arrange to serve a court document on you. In the case of a first or second mortgage the lender has a choice of three procedures.There are new rights under the Mortgage Rights (Scotland) Act 2001.
You have the right to ask the court to make a suspension order, delaying repossession. It is important that you note the differences in the procedure your lender has chosen as these effect the time limits for replying.
The three documents you are most likely to receive will be as follows.
● A ‘calling up notice’.This means that unless the arrears
are cleared within two months, the total sum owed (including any arrears) becomes due and the lender is able to move onto the next stage, which is to serve an ‘initial writ’.This is the first stage in court action, which could ultimately lead to your house being repossessed. See below for more information on the initial writ. If you want to ask for a suspension order you must apply within this two month period. See below for how to do this.
● A‘default notice’.This can be issued at any time after you
miss an instalment on your mortgage. It gives you one month to pay off the arrears. If you want to apply for a suspension order you must do so within one month of the notice period in the default notice.
● an application under‘section 24 of the Conveyancing
and Feudal Reform (Scotland) Act 1974’ with a
certificate confirming arrears.You have until the end of the court proceedings to apply for a suspension order. In practice, lenders will almost always follow a calling up notice or default notice with an initial writ quoting section 24. You should still be able to apply for suspension order at that stage. However, you could avoid uncertainty and costs if you apply earlier at the calling up or default stage.
Replying to court papers
Look out for these deadlines. Check which forms you have been sent.
You only have 21 days to reply to an initial writ.To do
this you are required to lodge a legal document called a ‘notice of intention to defend’ (NID).The action will have been started in your local sheriff court.
You will need legal advice on whether it is worth lodging a NID.You may qualify for ‘advice and assistance’ from a legal aid solicitor, but if you are in employment or on incapacity benefit you may have to make some contribution.There is a fee to lodge a NID, which you have to pay to the sheriff clerk. If you have a defence (for example, the amount sued for is wrong), it may be best to try to reach agreement on this point with the lender. If your defence goes to court, it may increase your eventual costs as the lender will be able to amend their claim in response to a defence by you.
Until recently, courts had no discretion and had to grant an order against you. Now, you can to apply for a‘suspension order’
which, if granted, will suspend the enforcement rights of the lender and prevent repossession.You can apply for this order if:
● your property is used for residential purposes;and ● you must use the house as your sole or main residence.
If you are the spouse, or current co-habitee, of the mortgage borrower you can also apply for a suspension order.
If you are a former co-habitee of the mortgage borrower, you may be able to apply for a suspension order if you are still living there.You can do this even if your partner has left you, if:
● you lived with them for six months before they left;and ● a child of the relationship (under 16) is living in the house
with you.
Applying for a suspension order
If a calling up notice or default notice has been served on you, but you haven’t received an initial writ, you need to apply to court using the summary applicationprocedure.The court
fee for this is £50.You will need a solicitor to help you with this. Contact a local legal aid solicitor or law centre. If you are not sure about this,contact us for advice.
If an initial writ has already been served, you will probably still be able to apply for a suspension order.At this stage you apply to the sheriff court using a minuteprocedure.This will cost
£26.Although you can do this yourself (with advice from the sheriff clerk), it is best to get a solicitor to help you.
How will the court decide whether or not to grant a suspension order?
The court will consider whether‘it is reasonable in all the circumstances’ to make an order.The sheriff must take
into account:
● the extent of the arrears;
● your reasons for getting into arrears;
● your ability to meet the obligations of the mortgage within
a ‘reasonable’ period;
● any action the creditor has already taken to help you; and ● the ability of anyone living in the house to obtain reasonable
alternative accommodation.
There is no guidance on what is a reasonable period but recent experience suggests that some sheriffs will accept repayment over extended periods of up to and beyond 10 years. English courts are now accepting such long term arrangements after a case called Cheltenham & Gloucester v Norgan and this may influence practice in Scottish courts. If the court makes a suspension order, the creditor cannot repossess the house, provided that you stick to the terms of the court order and make the agreed repayments. If you break the arrangement, the creditor can apply to have the
suspension order lifted and repossess the house. If your
circumstances change, you can apply to court for a variation of the order (for example, to make reduced payments). If you have obtained a suspension order before the initial writ has been served, the creditor cannot take you to court for the arrears provided that you have stuck to the payment arrangement.
Deciding what to do
● Check the details of your lender’s particulars of claim to
see if you agree with them. If you think that the information is wrong get legal advice.
● Use your personal budget sheet to work out how much
you can afford to offer.
● Offer the lender an amount which you can afford. If your
lender has already refused your offer, consider making an application for a suspension order.
Remember
Do start paying
It’s important to start paying the amount you have offered if it has been agreed or if you have been awarded a suspension order.
The hearing
Remember
No eviction at the hearing
If you receive an initial writ and the case goes to court you will not be evicted from your home on the day of the hearing.
You should attend the court hearing even if you have made an agreement with your lender.
If you will not be able to go to the hearing because of illness or disability, write to the court to explain your circumstances.
(Don’t forget to include the case number in the letter.)
In Scotland, only a solicitor can represent you in this type of case.
When you go to court
● Make short notes about what you want to say in the
hearing.Take these in with you and refer to them if you need to.
● If English is not your first language, you could take an
interpreter with you.
● Don’t be afraid to approach the lender’s representative
before the hearing to see if you can come to an agreement to present to the sheriff. Don’t be pressed into offering more than you can afford.
● If the lender’s representative does not agree to a proposal,
you should apply for a suspension order if you have not already done so.
Mortgage arrears
● If you can pay all the arrears in a short time, for instance
through a remortgage, ask for a ‘continuation’ (or adjournment) if the creditor agrees.
● If you don’t agree with the arrears figure ask for a
continuation so that the lender can provide a detailed statement of your account.The sheriff may agree or insist on a defence being stated and fix a date for a full hearing, called a ‘proof’.
Warning
Extra Costs
Watch out for extra costs being added on for each hearing you go to.You can ask the sheriff to order that the lender pays their own costs, for example, if their figures are wrong or they have not followed correct procedures and your hearing has to be continued. Don’t assume this will happen.Contact us for advice.
If the court orders repossession
If you cannot reach an agreement,andyou have either:
● not applied for suspension order; or ● a suspension order has been refused; or
● you have broken the arrangement made as part of the
suspension order;
then the lender can apply to the court for decree of ejection and a ‘warrant of possession’.This is a notice from the sheriff officers giving you a date and time when they will come to evict you. Unfortunately, you can only appeal to the lender to give you time to get another house. In practice they will hold off for 14 to 28 days to allow you to contact the local council. It is still not too late to try to make a deal with the lender but you may need to be able to find a lump sum to pay off (for example, 50% of the arrears) and make an offer to repay the rest of the arrears plus legal costs.
It is probably best to try to move out before the day of the repossession. Sheriff officers will give you every opportunity to be out in time but if you are not they do have the power to ‘open and shut lock fast places’(break in, move your furniture out on to the street and change the locks).They are officers of court. It is a criminal offence to resist sheriff officers in the course of their duties.
Sheriff officers are unlikely to try to seize your furniture. If they do,contact us for advice.
After you are evicted, your lender will still add interest to your mortgage account until the property is sold. Your lender must do the following.
● They must follow FSA rules and sell your home for the best
price that might reasonably be paid taking into account factors such as market conditions. However, sale by your lender is likely to produce a lower price than if you sold it yourself.
● They must use the money from the sale to pay off the court
costs, estate agent’s and solicitor’s bills, the mortgage and any second or third mortgages.
● They must tell you in writing how the money has been
spent.
● They must send you any money which is left over.
Remember to give them a new address.
Mortgages are paid off in the order you took them out. If the sale of your home does not raise enough money to repay the first mortgage and any other mortgages plus all the costs, you may still owe some money to the lender. See What if my home is not worth enough to repay the mortgage?on
page 42. Your lender could take court action against you to collect the rest of the debt using the same court procedure as credit debts.This is set out on page 33.
Complaints
Your lender should have their own complaints policy which you can use if you feel that at any stage your lender has acted unfairly. If you are not happy with the outcome of your complaint, you can contact the Financial Ombudsman Service. The address is on page 60 of this pack.The Financial
Ombudsman Service will look at whether your lender has followed the FSA rules which came into force on 31 October 2004, that cover lenders.They can also look at complaints about events that took place before that date under the terms of the old Mortgage Code. If this applies to you,contact us for advice.
Remember
Pay your mortgage first
You must pay your mortgage before credit debts such as bank loans, credit cards, door-to-door collectors or overdrafts which are not secured on your home. If your mortgage arrears and other priority debts use up all your money for creditors and there is nothing left to offer on your credit debts, tell your creditors this and send them a copy of your personal budget. See How to work out offers of payment
on page 25.
The Debt Arrangement Scheme and your mortgage
Where you have mortgage arrears, the Debt Arrangement Scheme (DAS) should allow you to apply to have your mortgage arrears included in a debt payment programme. In order to allow this to happen, it is hoped that lenders will not issue calling up notices where you have applied for a DAS debt payment programme.
If you have also applied for a suspension order under the Mortgage Rights (Scotland) Act, a sheriff will need to look at how your DAS debt payment programme will affect your finances before making the suspension order.
At the moment, it may be better to rely on your rights under the Mortgage Rights (Scotland) Act where you haven’t managed to reach a voluntary payment arrangement with your lender. Once it is clearer how the Debt Arrangement Scheme will deal with mortgage arrears in practice, a DAS debt payment programme may become an option worth looking at.
