Owner-occupiers law review 2009

[Tony Gosling]

Owner-occupiers law review 2009

 From April 2009 edn. of Legal Action Law and 
Practice magazine. <file:///http://www.lag.org.uk/>www.lag.org.uk 0207 833 2931


In this annual review, Derek McConnell looks at 
the changes and developments in the law relating 
to owner-occupation. Readers are invited to send 
relevant case notes to LAG or direct to the author.



POLICY AND LEGISLATION



Repossession statistics

In 2008, members of the Council of Mortgage 
Lenders (CML) repossessed 40,000 properties. In 
2007, the figure was 27,100. At the end of 2008, 
some 219,100 mortgages were in arrears of more 
than three months up from 127,500 at the end of 
2007: CML press release, 20 February 2009.(1) 
Figures released by the Ministry of Justice (MoJ) 
show that, in 2008, 142,046 mortgage possession 
actions were commenced in England and Wales 
resulting in 114,275 possession orders (including 
suspended orders) being made: MoJ news release, 
20 February 2009.(2) The figures for 2007 were 
137,605 and 95,374 respectively. In 2008, 148,000 
residential possession claims were issued by landlords in the county court.


Central government Initiative In respect of mortgage arrears

In September 2008, as the scale of the homeowner 
problem was becoming clear, the government issued 
Homeowners support package: impact assessments, 
outlining its assessment of the benefits of support for homeowners.(3)
Following the collapse in the financial market in 
autumn 2008, central government announced a 
number of initiatives to assist mortgage 
borrowers in difficulty with repayments. Many of 
the initiatives are outlined on the government's website Directgov.(4)
The Mortgage rescue scheme was announced in 
November 2008 by way of a £200 million package to 
enable defaulting borrowers who are not in 
negative equity to seek help through the 
intervention of a registered social landlord 
(RSL).(5) The RSL will either provide a loan to 
enable the borrower's mortgage payments to be 
reduced or the RSL will clear the secured debt 
completely to enable the ex-borrower to remain as 
a tenant. It is claimed that this scheme will 
avoid up to 6,000 repossessions across England.
The Homeowners mortgage support scheme was 
announced by the Prime Minister in December 
2008.(6) It has been the subject of revision and 
is anticipated will come into effect in April 
2009. It is a complicated scheme involving the 
government guaranteeing interest rolled up over a 
maximum period of two years during which the 
lender agrees to forego repossession where it is 
expected that the borrower will be able to resume 
full repayments if given time to do so. The 
eligibility criteria and the detail of the scheme 
are set out in the Policy scheme description. (7)
In the 2008 pre-budget report, the government 
announced the creation of a new Lending Panel 
bringing together government, banks, trade 
bodies, regulators and consumer groups to monitor 
lending to businesses' and individuals. The major 
lenders on the panel have agreed to a moratorium 
on repossessions, committing not to repossess for 
at least three months after a borrower falls into 
arrears. Some lenders have gone further and have 
committed not to repossess for at least six 
months after a borrower is in arrears: HM 
Treasury press release 09/09, 6 February 2009.(8)
With effect from 5 January 2009, changes were 
made to the benefit regulations regarding the 
payment of mortgage interest on some housing 
costs (Social Security (Housing Costs Special 
Arrangements) (Amendment and Modification) 
Regulations 2008 SI No 3195).(9) Homeowners who 
receive income support, jobseeker's allowance, 
state pension credit or employment and support 
allowance will now be entitled to payments in 
relation to mortgage interest after 13 weeks from 
the start of the claim for benefit. The maximum 
loan on which mortgage interest will be met has 
been increased from £100,000 to £200,000.


Financial Services Authority

In March 2008, the Financial Services Authority 
(FSA) issued its Mortgage effectiveness review - 
stage 2 report dealing with the specialised 
sectors of sub-prime and lifetime mortgages where 
the FSA believed that there was a greater risk of 
'consumer detriment'.(10) The review noted that 
both types of borrowers generally shopped around 
for the best product but that sub-prime borrowers relied heavily on brokers.
On 5 August 2008, the FSA issued details of a 
review of its effectiveness in its regulation of 
mortgage lending and called on borrowers to be 
treated fairly, particularly in the context of 
the anticipated increase in the level of arrears 
and repossessions.(11) The review concluded that 
more could be done by lenders to consider a 
borrower's personal circumstances and to offer 
more options to resolve the arrears position. It 
also published examples of good and poor practice 
in relation to arrears recovery, responsible 
lending and mortgage advice. At the same time the 
FSA issued the research report Mortgage 
effectiveness review: arrears findings, prepared 
for the FSA, based on interviews with 40 
borrowers in default in late 2007.(12) The 
conclusions recorded that lenders were not seen 
as being willing to agree to alternatives such as 
payment holidays, making partial payments, 
capitalising arrears and switching the type of mortgage.
On 27 November 2008, the FSA wrote to all 
mortgage lenders and administrators stating that 
the FSA expected lenders and administrators to 
review critically current arrears policies and 
management practices and procedures and to assess 
whether in practice borrowers in arrears are 
being treated fairly.(13) Lenders and 
administrators were required to communicate their 
conclusions and any actions they proposed to take 
to the FSA by 31 January 2009. The fact that the 
FSA decided to give the lending industry this 
second warning is some indication of the fact 
that the FSA is not best pleased by the 
industry's response to the mounting difficulty of mortgage repossessions.


Mortgage arrears protocol

On 19 November 2008 the Pre-action protocol for 
possession claims based on mortgage or home 
purchase plan arrears in respect of residential 
property came into effect.(14) It seeks to 
regulate pre-litigation procedure in respect of 
first charge residential mortgages and home 
purchase plans regulated by the FSA, second 
charge mortgages over residential property and 
other secured loans regulated by the Consumer 
Credit Act 1974, and unregulated residential 
mortgages. For analysis of the protocol see R 
Jordan, 'Don't let it be misunderstood', ROOF 
March/April 2009, p41; Tom Bailey and Greg 
Williams, 'Stemming a rising tide' NLJ 13 
February 2009, p221; and Derek McConnell, 'New 
mortgage arrears protocol explained', January 
2009 Legal Action 19. White the protocol only 
applies to England and Wales, the CML has 
confirmed that it would be happy 'to work towards 
developing a pre-action protocol for Scotland if 
that is what the Scottish government wants': CML 
news & views, 4 November 2008.(15)


Legislative reform

In December 2008, a joint Treasury-FSA 
consultation paper was issued on proposals for 
the legislative framework for the regulation of 
Islamic finance investment bonds including 
mortgage finance: HM Treasury press release 
136/08, 11 December 2008.(16) This included a 
helpful analysis of the Islamic financial 
landscape in the UK. The consultation period closed in March 2009.
In February 2009, the government issued a 
consultation paper on how to strengthen 
protection for vulnerable homeowners in the 
'sale-and-rent-back' market: HM Treasury press 
release 09/09,6 February 2009.(17) The proposal 
is to bring companies offering sale and-rent-back 
agreements within the scope of regulation by the 
FSA. This follows the publication of a report by 
the Office of Fair Trading (OFT) on the 
sale-and-rent-back market in October 2008.(18) 
The FSA has also issued its own consultation 
paper, Regulating sale and rent back: an interim. 
regime, which sets out the FSA's thinking on 
future regulation: FSA press release 
FSA/PN/022/2009, 6 February 2009.(19) The 
suggestion is that an 'interim regime' is brought 
in from July 2009 with a full regime to be 
implemented in the second quarter of 2010. The 
consultation process closes on 1 May 2009.
In February 2009, the OFT issued its consultation 
paper Second charge lending ­OFT guidance for 
brokers and lenders.(20) The document sets out 
the OFT's guidelines on various issues associated 
with second mortgages, including general 
principles of customer care and good practice 
such as the expectation that repossession should 
only be a last resort. The consultation process 
ends on 8 May 2009. In November 2008, the Finance 
and Leasing Association issued its Good practice 
guidelines for second charge mortgages - helping 
customers with payment difficulties.(21) This 
mirrors much of what is contained in the mortgage pre-action protocol.
In February 2009, the OFT also announced the 
launch of a market study covering regulation of 
the process of buying and selling homes which it 
is intended will be completed by the end of 2009: 
OFT press release 19/09,25 February 2009.(22)
The study will take a comprehensive look at the 
market for home-buying-and-selling services. It will consider:
    * competition on price and quality between 
service providers, principally estate agents;
    * the prospects for entry by new business 
models, including internet-based models;
    * whether the existing regulatory framework 
provides the right balance between protecting 
consumers who are buying or selling a home and 
ensuring that the market remains open to competition and innovation;
    * the relationships between estate agents and 
other service providers such as mortgage brokers, 
surveyors, solicitors and other professional advisers.
The Home Repossession (Protection) Bill was 
introduced to the House of Commons by Andrew 
Dismore MP and received its first reading on 3 
February 2009. The purpose of this Private 
Members' Bill is to overturn the decision in 
Horsham Properties Group Ltd v Clark and Beech 
(see below).The bill will have its second reading on 26 June 2009.


Council of Mortgage Lenders' arrears and possessions policies

On 22 October 2008, the same date that the 
mortgage arrears protocol was signed off by the 
Master of the Rolls, the CML issued its Industry 
guidance on arrears and possessions to help 
lenders comply with MCOB 13 and TCF 
principles.(23) The CML described the guidance 
'as a further step in strengthening the 
robustness of existing practices, alongside the 
Civil Justice Council's pre-action protocol...' 
The guidance sets out in tabular form examples of 
good practice in policy and procedure, and may of 
some benefit to advisers in their dealings with mortgage recovery cases.


Consumer credit

The Legislative Reform (Consumer Credit) Order 
2008 SI No 2826, which came into effect on 31 
October 2008, creates a new exemption relating to 
investment properties. The Order inserts s16C 
into the Consumer Credit Act (CCA) 1974 under 
which a credit agreement secured by a land 
mortgage that is not occupied (or less than 40 
per cent only is occupied) by the borrower or 
his/her defined close family is exempted from 
regulation by the CCA 1974 (reg 3). Unlike the 
business exemption in s16B of the CCA 1974 which 
only applies where the credit exceeds £25,000, 
the investment exemption applies for credit of 
any amount. This amendment was made to exempt 
buy-to-let mortgages from regulation under the CCA 1974.
The CCA 2006 amended the CCA 1974 by replacing 
the extortionate credit bargain provisions in 
ss137-140 with a new unfair relationship test in 
ss140A-140C. Since 6 April 2008 the new 
provisions apply to all credit agreements 
whenever entered into and whether or not the 
agreement is regulated under the CCA 1974. The 
sole exception is where an agreement is exempt 
under s16(6C) of the CCA 1974 because it is a 
regulated mortgage contract under the Financial 
Services and Markets Act 2000. In May 2008 the 
OFT issued its guidance document Unfair 
relationships - enforcement action under Part 8 
of the Enterprise Act 2002.(24) This sets out the 
OFT's thinking on the concept of 'unfair 
relationship', particularly in the context of its 
regulatory role to protect consumers under Enterprise Act 2002 Part 8.


Home Information Packs

The Home Information Pack (Amendment) (No 3) 
Regulations 2008 SI No 3107 made minor amendments 
to the principal Home Information Pack (No 2) 
Regulations 2007 SI No 1667 and introduced the 
new requirement, effective from 6 April 2009, for 
the seller to include, within the information 
pack, a property information questionnaire 
answering standard questions about the property being sold.(25)


CASE-LAW




Mortgage possession proceedings: Horsham 
Properties Group Ltd v (1) Clark (2) Beech and 
GMAC RFC Ltd (third party) and Secretary of State for Justice (Intervener)

[2008] EWHC 2327 (Ch),
8 October 2008
The defendants obtained a 'buy-to-let' mortgage 
from GMAC RFC Ltd (GMAC) in January 2004. Arrears 
accrued and GMAC appointed receivers under a. 
power in the legal charge and Law of Property Act 
1925 s101. In September 2006, the receivers sold 
the property, relying on a clause permitting this 
in the charge, to Coastal Estates for a price 
adequate to payoff the debt secured by the legal 
charge. On the same day Coastal transferred the 
property to the claimant, who then issued 
possession proceedings claiming that the 
defendants were trespassers. Ms Beech, in 
defending the proceedings, conceded that the 
power of sale had arisen under s101 and that the 
terms of the legal charge enabled the receivers 
to sell the property free from the rights of the 
defendants as mortgage borrowers. It was argued 
that the loss of Ms Beech's rights as co-owner 
amounted to being deprived of a possession within 
the meaning of article 1 of Protocol No 1.
The court held that the defendants' interest in 
the property was lost when the receivers 
contracted to sell the property to Coastal. The 
exercise by receivers appointed and acting under 
purely contractual powers of overriding the 
defendants' interest in the property, namely the 
equity of redemption, by contracting to sell the 
property did not amount to deprivation of 
possession within the meaning of article 1. 
Following default by a borrower, the sale of a 
property without having obtained a court order 
for possession is justified in the public 
interest and does not require scrutiny by a 
court. This was a right given to the lender by 
the borrower under the terms of the mortgage 
contract. Administration of Justice Act 1970 s36 
had no application in a claim for possession by a 
purchaser as it was a claim not brought by the mortgage lender.
The CML, following this decision, has indicated that its members:
... will not try to sell a property occupied by a 
residential borrower without first obtaining a 
court order (unless the property is vacant or
has been abandoned, or in cases of fraud, or with 
the informed consent of the borrower). Similarly, 
the lender will not appoint a receiver to sell a 
residential property without getting a court order beforehand...
However, the commitment of CML members not to 
appoint a receiver without first obtaining a 
court order does not apply to commercial 
transactions, including buy-to-let mortgages, 
business loans secured against a residential 
property or bridging loans (CML news & views, 18 November 2008).(26)


Richardson v Midland Heart Ltd 12 November 2007,

[2008] L& TR 31
In September 1995 the claimant acquired a shared 
ownership lease from the defendant housing 
association. The lease was for 99 years and the 
claimant paid a premium of £29,500 which 
represented 50 per cent of the market value of 
the house. The lease reserved a rent of £1,456 
per annum subject to an indexed, annual increase, 
and contained 'staircasing provisions' enabling 
the tenant to acquire further shares in the house 
and eventually the freehold. Following threats 
from the claimant's husband's criminal 
associates, the claimant left the house and rent 
arrears accrued. The claimant decided to sell the 
house and asked the defendant to sell the house 
on her behalf. The property was valued at 
£151,000 and the claimant signed a form 
indicating her agreement to a sale at that price. 
The house was marketed but no buyer was found. A 
possession order was obtained by the defendant 
under Ground 8. The claimant brought proceedings 
claiming that, as a result of the shared 
ownership lease and the premium which she had 
paid, she had acquired a 50 per cent interest in 
the property and that the freehold was subject to 
a trust. She sought a declaration in relation to 
the extent of her interest in the property and an 
order for sale or an account of 50 per cent of the proceeds of sale.
The court rejected the argument that there were 
two tenancies, namely an assured tenancy 
protected by the Housing Act (HA) 1988 and a long 
leasehold interest vulnerable to forfeiture. It 
held that the lease granted to the claimant 
created a 99-year term of years certain and was, 
as a result, a tenancy to which HA 1998 s1 
applied. As the property was let as a separate 
dwelling to an individual who occupied it as her 
only or principal home and as it did not fall 
within any of the exceptions, it was therefore an 
assured tenancy. The possession proceedings had 
been properly brought and the defendant was 
entitled to the possession order. There was no 
foundation for the argument that the freehold was 
held on trust by the defendant for itself and the 
claimant. The relationship was simply one of landlord and tenant.


In the matter of Dehdashti Haghlghat (a bankrupt) 
sub nom Louise Brittain (trustee in bankruptcy) v 
(1) Dehdashtl Haghighat (2) Dehdashtl Haghighat

12 January 2009.
LS Gaz 29 January 2009, p15
The trustee in bankruptcy (B) applied for an 
order for possession and sale of a flat occupied 
by the bankrupt husband (H) and his wife (W). H 
and W lived in the property with their three 
adult children. The eldest child, M, was 
seriously disabled and required continuous care which was provided by W.
The figures showed that even with the sale of the 
flat, there would still be a substantial 
shortfall in the bankruptcy. In deciding whether 
it was just and reasonable to make the order 
sought, the court was required to decide whether 
the circumstances of the case were exceptional, 
so as to set aside the presumption in Insolvency 
Act 1986 s336(5) that the interest of the 
bankrupt's creditors outweighed all other 
considerations. There was evidence that Hand W 
were estranged and that once divorced H and his 
younger son were to move out. Expert evidence 
stated that W provided daily care for M and that 
she was vulnerable to a range of chronic 
illnesses as a result of looking after M. In 
addition, the present care arrangements at the 
property were dependent on W having H there to 
help with moving M. B contended that it was just 
and reasonable for the orders to be made as the 
local authority would come under a statutory 
obligation to rehouse the family as homeless.
The court held that if B's application were 
simply dismissed she would be deprived of any 
expectation of receiving anything for the estate 
and would remain liable for the flat's ground 
rent and service charges. W's and the children's, 
and, in particular, M's interests were also 
material. An order for possession would be 
granted to be deferred for a substantial period, 
namely three years, or, if sooner, until three 
months after M ceased permanently to reside at 
the property. This was to allow the local 
authority to make provision for Wand M in 
accommodation which would be suitable to their 
needs, and for an orderly change to be effected in M's care arrangements.


Limitation

Bradford & Bingley plc v Cutler [2008] EWCA Civ 74,

18 January 2008
In 1987 the defendant purchased a property with a 
mortgage. The defendant was made redundant and 
claimed benefit. Payments were made in relation 
to the mortgage interest in accordance with the 
relevant benefit regulations with the last 
payment being made directly to the claimant in 
December 1993. In June 1994, the security was 
sold following repossession. In November 2005, 
the claimant issued proceedings to recover the 
shortfall on sale. The claim was defended on the 
basis that it was statute-barred as more than 12 
years had elapsed since the course of action had 
accrued. The issue was whether the last payment 
by the Benefits Agency, which was within the 12 
years before the issue of proceedings, was 
sufficient to extend time for the claimant.
Dismissing the appeal, the court held that the 
judge was right to hold that in making the 
payment to the claimant the Benefits Agency was 
acting as the defendant's agent. In making the 
claim for benefit, to include assistance with 
mortgage interest payments, the defendant knew 
that the payments would be made directly in 
discharge of his mortgage liability. Accordingly, 
the Benefits Agency made those payments as the 
defendant's agent and the limitation period was therefore extended.


Yorkshire Bank Finance Ltd v Mulhall

[2008] EWCA Civ 1156,
24 October 2008
In April 1991 the claimant obtained a money 
judgment against the defendant, and in June 1991 
a charging order absolute was made to secure the 
judgment debt on the defendant's property. In 
January 2007 the defendant sought to have the 
charging order set aside as the claimant had 
taken no steps to enforce the charging order. The 
defendant argued that the charging order was not 
enforceable by reason of lapse of time, relying 
on Limitation Act 1980 s20 as more than 12 years 
had elapsed from the date on which the right to 
receive money had accrued. Dismissing the 
defendant's appeal, the court concluded that the 
claimant's rights were not barred after 12 years 
because the holder of a charging order does not 
have a right to possession such that time can run 
against it under s15 and extinction of title 
cannot therefore occur under s17: Ezekiel v Orakpo [1997] 1 WIR 340 approved.


Public funding statutory charge

McPherson v Legal Services Commission

[2008} EWHC 2865 (Ch),
24 November 2008
In 1997 a mortgage lender brought possession 
proceedings against the respondent and her 
husband claiming possession and a money judgment 
at the time claimed to be £267,864.35. In June 
1998 the respondent obtained a legal aid 
certificate which was subsequently revoked in 
April 2001. In December 2001 judgment was 
obtained by the lender. The proceedings continued 
and in January 2002 a consent order was agreed. 
The consent order recited that the parties had 
agreed terms of settlement and that the lender 
had received £265,000. In November 2002 the title 
to the property was transferred into the 
respondent's sole name. In March 2006, the Legal 
Services Commission (LSC), as applicant, applied 
to HM Land Registry to register a statutory 
charge in its favour. The respondent objected to 
that registration, contending that no property 
had been recovered or preserved and that the 
property had no value, net of the mortgage in 
favour of the lender. The matter was referred to 
the adjudicator of the Land Registry. During the 
proceedings the LSC served its statement of case 
which accepted that if the respondent could show 
that there was no equity in the property at the 
date of the consent order then the LSC would 
concede that it did not have a statutory charge 
as there was no equity for the charge to attach to.
On appeal it was held that the applicant had 
achieved something as a result of the defence. 
The most obvious thing was that it had reduced 
the sum claimed by the lender from whatever it 
was at the date of settlement to the reduced 
settlement figure. The LSC was entitled to a 
statutory charge on whatever was the extent of 
the respondent's beneficial interest in the 
property as at the settlement date in January 2002.


Footnotes

1 - Available at: www.cml.org.uk/cml/media/press/2108
2 - Available at: 
http://nds.coi.gov.uk/content/Detail.asp?ReleaseID=393159&NewsArealD=2
3 - Available at 
www.communities.gov.uk/documents/housing/pdf/Homeownerssupportpackage
4 - See http://campaigns.direct.gov.uk/mortgagehelp/index.html
5 - Available at: 
www.communities.gov.uk/housing/buyingsellingjmortgagerescuemeasures
6 - Available at: 
www.communities.gov.uk/housing/buyingsellingjmortgagesupportscheme
7 - Available at: 
www.communities.gov.uk/housing/buyingselling/mortgagesupportscheme/mortgagesupportpolicy
8 - Available at: www.hm-treasury.gov.uk/press_09_09.htm
9 - Available at: www.opsi.gov.uk/si/si2008/uksi_20083195_en_1
10 - Available at: www.fsa.gov.uk/pages/Library/Communication/PR/2008/030.shtml
11 - Available at www.fsa:gov.uk/pages/Library/Communication/PR/2008/087.shtml
12 - Available at: www.fsa.gov.uk/pubs/other/mer­_report.pdf
13 - Available at: www.fsa.gov.uk/pages/Library/Communication/PR/2008/142.shtml
14 - Available at 
www.justice.gov.uk/civil/procrules­_fin/contents/protocols/prot_mha.htm
15 - Available at: www.cml.org.uk/cml/publications/newsandviews/27/86
16 - Available at: www.hm-treasury.gov.uk/press­136_08.htm
17 - Available at: www.hm-treasury.gov.uk/press­09_09_htm
18 - Available at: 
www.oft.gov.uk/advice_and_resources/resource_base/market-studies/current/saleandrent 

19 - Available at: www.fsa.gov.uk/pages/Library/Communication/PR/2009/022.shtml
20 - Available at: www.oft.gov.uk/shared_oft/consultations/oft1057con.pdf
21 - Available at: www.fla.org.uk/news/news.asp?ID=502.
22 - Available at: www.oft.gov.uk/news/press/2009/19-09
23 - Available at: 
www.cml.org.uk/cml/filegrab/AsarPsindustryguidance22Oct08.pdf?ref=6055
24 - Available at: 
www.oft.gov.uk/advice_and_resources/publications/guidance/consumer_credit_act/oft854
25 - Available at: www.opsi.gov.uk/si/si2008/uksi_20083107_en_1
26 - Available at: www.cml.org.uk/cml/publications/newsandviews/28/89
....
Derek McConnell is a solicitor with South West 
Law In Bristol and co-author of Defending 
Possession Proceedings, 6th et LAG, 2006 
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