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Anger in court
Published 20 April 2023
Repossession claims have fallen since the introduction of a new mortgage pre-action protocol in November. But is it really helping homeowners in trouble? Tony Marshall finds worrying evidence that a failure to recognise the protocol could be making things worse, while Jeremy Kuper talks to homeowners at one London court.
Homeowners who are turning up at court to defend themselves from eviction are being charged hundreds of pounds in unnecessary legal fees, according to Shelter caseworkers representing them at repossession hearings.
And the pre-action protocol – which was meant to guide the way courts deal with such cases – is offering no protection, the caseworkers say.
Growing numbers of struggling homeowners, when they present themselves at court, are angry and frustrated that the recommendations are not being followed. The protocol is being ignored not only by the courts, but also by the lenders bringing the actions – some of which have had billions of pounds of public money – and the solicitors acting on their behalf.
The extra fees are simply adding to the debt that caused the threatened homeowners to fall behind with mortgage payments and brought them to the court in the first place – and make it even more difficult to escape the trap they find themselves in.
The media fanfare when the pre-action protocol was introduced last November raised hopes that it would give homeowners a better chance of staving off eviction. Borrowers would be given time to get their finances in order, arrange to repay at a lower rate if that was all they could afford, and nobody would be threatened with being kicked out unless they were at least six months in arrears.
‘But people are saying that the government is claiming it is doing everything for people threatened with eviction,’ said a caseworker who is a regular at courts in the North East. ‘They say there were stories in all the papers. But in most of the courts I visit the protocol is a complete failure. I understand why anyone threatened with repossession in such circumstances would feel anger.’
The mortgage protocol, unlike protocols for personal injury claims, has little standing in law. It does not change the regulations in any way and merely sets out recommendations for best practice.
Shelter caseworkers argue that the protocol is bound to fail because it lacks teeth. Other protocols allow judges to penalise offending parties by awarding costs against them. Similar sanctions were included in the draft of the mortgage protocol but were removed before it was published.
‘A lot of the time we are dealing with second charges and non-high street lenders. Loan consolidation companies in particular are not interested’
‘I don’t think it’s making a great deal of impact with judges, because if you look at the protocol what is the court going to do?’ the caseworker said. ‘As long as lenders can show there’s arrears, the likelihood is that they’ll get a possession order. There’s no sanctions attached to the protocol as there were in the draft.’
Another caseworker said she raised an objection about the lender failing to comply with the protocol. ‘But the judge just dismissed the idea and said he couldn’t be bothered to listen. So that was the end of it.’
But even when the courts are scrupulous about implementing the recommendations, borrowers can still face bills for hundreds of pounds in unnecessary extra costs because the lender – or its solicitor – has not looked at the protocol. It is particularly unfair, caseworkers argue, because borrowers can be saddled with the extra debt through no fault of their own – for example, in cases where borrowers have fully complied with a ruling to pay arrears.
‘In one court, the claim was adjourned generally on terms, which is a good outcome,’ said one caseworker. ‘But the point I was seeking to make was that the claim should never have been issued because the borrowers had made an agreement and there had been no break in them paying back arrears.
‘The lender had still issued a claim. The case was adjourned and no possession order was issued, but several hundred pounds costs were added to the mortgage.
‘Why should the borrower be stuck with the costs? If the lender had complied with the protocol, none of it would have been necessary. And the judge just washed over it. No matter how vigorously you argue, most judges are not going make a fuss over things like that.’
What the protocol is meant to do
The pre-action protocol recommends that borrowers and lenders should take all reasonable steps to discuss with each other, or their representatives, the cause of the arrears, the borrower’s financial circumstances and the proposals for repayment of the arrears.
Parties should consider if the causes of the arrears are temporary or long term and whether the borrower may be able to pay the arrears in a reasonable time.
Should apply to arrears on:
- First charge residential mortgages and home purchase plans regulated by the Financial Services Authority under the 2000 Financial Services and Markets Act;
- Second charge mortgages over residential property and other secured loans regulated under the 1974 Consumer Credit Act on residential property;
- Unregulated residential mortgages.
Latest figures issued by the Ministry of Justice purport to show that the introduction of the pre-action protocol has led to a massive drop in the number of cases going through the courts.
Between October and November last year, continued from page 28 there had been ‘a fall of around 50 per cent in the daily and weekly numbers of new mortgage repossession claims being issued’. This had coincided with the introduction of the protocol on 19 November, the ministry said.
The ministry cautioned that it was hard to read too much into the figures because possession orders are usually made about eight weeks after a claim has been issued. But it expected that its impact would begin to be felt in the early part of this year.
But caseworkers strongly doubt that it will have the sort of impact the ministry is claiming. They agree that the courts have seen a marked drop in the number of people turning up this year to defend themselves from repossession and that the number of mortgage claims has fallen.
However, they disagree that this is as a result of lenders taking serious notice of the protocol. ‘I am informed by lenders’ agents that the drop in court cases is due to lenders ensuring that they are protocol compliant,’ one caseworker said. ‘But I find it hard to believe. Lenders were well aware of the protocol – or should have been – well before the inception date on 19 November.’
He also said that government claims had done little to reassure clients, and some comments had provoked growing anger. ‘I have noted a lot of frustration and downright annoyance from clients who see what is being said in the media, with politicians stating they are doing all they can to keep people in their homes only to find the cold, harsh reality that for many people there is no government help.’
Lynda Igoe, housing advice manager at Hartlepool council, gives advice to homeowners threatened with repossession. She said the most vulnerable were people with second charges – loans taken out on top of the original mortgage – secured against the property. ‘The problem we have is that rescue schemes – including the pre-action protocol – aren’t applied to second loans.’
Loan companies – often sub-prime lenders and firms specialising in loan consolidation deals – are quick to issue court proceedings for possession when a borrower falls behind with payments.
‘We have cases where lenders have completely ignored the guidance,’ she said. ‘Even in cases where a judge had given the borrower time to pay, the lender hadn’t been happy about it and hadn’t offered the borrower a way out. They’d just banged the claim straight to court when the borrower failed to pay. That’s against the spirit of the whole thing.’
Howard Springett, Citizens Advice co-ordinator at Kingston county court, said that lenders or their solicitors were bringing repossession claims even when the borrower wasn’t behind with payments, and there was no question that such cases violated the protocol’s provisions.
‘Some lenders are ignoring the protocol altogether,’ he said. ‘We had an example where the borrower had no difficulty in paying her monthly instalments. The judge adjourned the case for the lender to consider the protocol. But the claim came up again shortly afterwards and the lender had still done absolutely nothing, so the judge adjourned it again.’
He questioned why, in the present climate, lenders were taking such an aggressive stance. ‘Lenders sometimes go for a possession order even when it is obvious the borrower can make a contribution to the mortgage. If a property is in negative equity it is surely better for the lender to accept something rather than nothing.’
The North East caseworker said: ‘The whole idea of any kind of protocol is to encourage better pre-litigation or pre-court contact between the parties, and attempt to resolve the dispute without having to issue proceedings.’
But Lynda Igoe warned that the number of possession claims are likely to go on rising. She said: ‘We expect over the next few months we’ll be getting a lot more defaults. Some people battle on, but a lot just want to make a clean break.
‘The government is talking about protecting people. But clients are angry when they are hearing this all the time. In reality, there’s no help, especially for people with second charges, at all.’
Judge gives time for people to sort themselves out
It is Monday morning at Bromley County Court and solicitor Jo Knorpel (pictured) is working as a court adviser for Greenwich Housing Rights. She has witnessed a big rise in mortgage possession cases recently.
‘The district judges at Bromley do as much as they can to help, and adjourn proceedings to give people time to sort themselves out,’ says Knorpel, who provides free advice to all-comers.
‘The pre-action protocol is rarely mentioned, except in cases where the lender says it has been complied with. The trouble is a lot of the time we are dealing with second charges and non-high street lenders. They ignore it, and loan consolidation companies in particular are not interested. They only want to get their money back.’
Her first client, Roger Green – not his real name – is in his 60s and works as a driver. Last year, he took out a second charge – a loan secured against the family home – for almost £50,000 on top of his existing mortgage. The loan from a finance company was at a rate of more than 14 per cent interest. Roger is now six months behind on his repayments. His main mortgage is also in arrears by about £10,000.
Roger offers to pay off the arrears in monthly instalments. His lender’s solicitor is unconvinced by his ability to pay, and seeks an outright possession order. Roger has turned up at court without evidence, such as bank statements, to prove how much he is earning. It takes the judge less than ten minutes to order possession in 28 days’ time – unless Roger can clear the £4,000 arrears by then.
John Reilly is another client in arrears. He had also taken out a second loan for £50,000 to consolidate his debts. The interest was 15 per cent and when he lost his job last year, he soon fell into arrears on both his mortgage and the second charge.
The mortgage is from a high street lender which, in line with government guidance, has not pushed for repossession and has allowed Mr Reilly to pay off the arrears in instalments. He now has a new job, but fears the finance company that provided the second charge will repossess his home.
‘We’ve got nowhere [else] to live. We were going to put the house on the market,’ he says, ‘but there are no buyers.’
Mr Reilly is in his mid-50s and bought the property through buy to let. He is hoping that the judge will grant a suspended possession order, or even an adjournment. ‘If only we could have sold the house when it was worth £260,000 and our debts were £190,000. If we are repossessed I will come out with nothing,’ he says.
The loan company’s solicitor is prepared to accept Mr Reilly’s offer to repay the arrears, and the judge grants a suspended possession order. But if he fails to keep up repayments the property will be repossessed. ‘I hope I don’t get ill now,’ he says.
Next is Mrs Joan Smith, who has a son due to take A-levels in the summer. The judge gives her more time to see if she might qualify for benefits which could save her from repossession, ignoring the pleas from the lender’s representative to order possession immediately.
Bob Novak is from the Czech Republic and fell into arrears when his work as a consultant dried up last year. His mortgage debt is £264,000 and he already tried to sell his property for £220,000 last year, but was unsuccessful.
Flats in the same block are going at auction for as little as £140,000. His bank has agreed to reduce his monthly payments, ‘otherwise I would never have turned up’, he says. He would have allowed the property to be repossessed, leaving the mortgage lender with a big unpaid debt.
Bob has a new job, and thinks that he can negotiate a deal to pay the arrears at £100 a month. The judge and lender’s representative are happy with the offer. But Bob works out that it could take him 10 years to pay off the arrears.
