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Secured recoveries update - January 2016

Secured recoveries update - January 2016

  • United Kingdom
  • Financial institutions - Secured recoveries

07-01-2016

In this update:

Secured recoveries litigation

Sales in possession

Case law update

Our case law update includes coverage of the following key cases on secured recoveries, title rectification and sales in possession. Download the update.

  • Does an LPA Receiver owe any duties to a bankrupt borrower? Rajinder Singh Purewal v Countrywide Residential Lettings Limited [2015] EWCA Civ 1122
  • When will the court grant a civil restraining order? Moosun v HSBC Lender Plc t/a First Direct [2015] EWCH 3308 (Ch)
  • Will the restoration of a dissolved company revive a disclaimed freehold? Fivestar Properties [2015] EWHC 2782 (Ch)
  • When is it reasonable to pursue a decree for possession? Westfoot Investments Ltd v European Property Holdings Inc (Scotland) and Westfoot Investments Ltd v European Property Holdings Inc (Scotland)
  • Can a lender with defective security be subrogated to an unpaid vendor’s lien even though it has not advanced the purchase monies? Bank of Cyprus UK Ltd v Menelaou [2015] UKSC66
  • Can the assignee of a charge exercise a power of sale in order to realise the asset despite not having been registered as the proprietor of the charge, and therefore only holding an equitable interest in that charge? Skelwith (Leisure) Limited v Armstrong [2015] EWHC 2830 (Ch)
  • Should solicitors pass on information, which casts doubt on the valuation, to the lender? Goldsmith Williams Solicitors v E Surv Ltd [2015] EWCA
  • Hindsight is a wonderful thing… Canada Square Ltd v Kinleigh Folkard and Hayward Ltd (Unrep) Central London County Court 17 September 2015
  • Council liable for negligent misstatement on CON29 Chesterton Commercial (Oxon) Limited v Oxfordshire County Council [2015] EWHC 2020 (Ch)

Mortgage arrears continue to fall

The latest data from the Council of Mortgage Lenders (CML) shows a continuing decline in arrears and repossessions in the third quarter of 2015. The quarterly repossession and arrears rates are once again at their lowest levels since the CML's quarterly records began.

There were 2,500 properties taken into possession in the third quarter, the same number as in the second quarter, and 50% down on the 5,000 reported in the third quarter of 2014 (although caution is needed in making comparisons).

FCA publishes Occasional Paper No 11 on methods for analysing mortgage markets 

The Mortgage Market Review (MMR) was set up by the Financial Services Authority following the 2008 financial crisis as a comprehensive review of the mortgage market. It culminated in a Policy Statement and final rules in October 2012, with the majority of the MMR reforms coming into effect in April 2014.

The core element, the responsible lending rules, made lenders fully responsible for assessing whether a customer could afford a loan and set out principles for assessing affordability. The aim was to prevent consumers from taking out mortgages that were beyond their financial means or where the risks were high that the loans would become unaffordable as a result of reasonable, foreseeable developments such as increases in interest rates.

The MMR did not precisely define what was meant by ‘affordable’ or how affordability should be measured. However, during the development of the new policy a method was needed to measure and judge mortgage affordability using the data available at the time.

The FCA's November 2015 occasional paper presents the research undertaken for the review into three potential mortgage affordability metrics and their use in the cost benefit analysis of the mortgage lending reforms. It offers a more detailed discussion of the methodologies than was possible in the consultation documents.

The FCA is hoping that the methodological insights offered in the paper will be valuable to other researchers working in the highly topical area of mortgage affordability.

Changes to the mortgage pre-action protocol and particulars of claim

The Ministry of Justice (MOJ) amended the Pre-Action Protocol for possession claims based on mortgage arrears in respect of residential property (PAP) in April 2015 but did not update the PAP checklist to correspond with the amended PAP.

In October, the MOJ amended the PAP checklist (form N123). There is one change to the checklist: the introduction at section 7 of a new section in relation to tenants. This requires lenders to explain the steps that have been taken to check whether a tenant of the borrower is in occupation of the property, whether that tenant was authorised by the lender and what order the lender is seeking in light of the information obtained.

The MOJ has made a corresponding amendment to paragraph 10 of the particulars of claim (form N120). Whereas before, lenders were only required to state the date of any tenancy entered into between the lender and the borrower and the date of any notice given, paragraph 10 of the new form states:

“A tenancy was entered into between the mortgagor and the occupier named in paragraph 3 above with the authorisation of the mortgagee (delete if not applicable).

Or

without the authorisation of the mortgagee (delete if not applicable).

If a tenancy was entered into with the authorisation of the mortgagee explain what if any steps the mortgagee intends should be taken in respect of that tenancy.”

(Paragraph 3 requires the lender to state who is in possession of the property).

In view of these changes, it is imperative that before proceedings are commenced, all reasonable steps are taken by lenders to ascertain who is residing at the property. If the property is occupied by a tenant, it would be advisable to give standing instructions to field agents to obtain a copy of the written tenancy agreement. In the absence of a written tenancy, the field agent should enquire about the landlord’s name, the date the tenancy commenced, the term of the tenancy, the amount of rent payable and to whom the rent is paid.

Residential mortgages - no tenant in occupation

Where there is no tenant in occupation of the property, the checklist can state ‘A field agent’s report was obtained on [date] and this confirmed that the property was [occupied by the borrower / occupied by the borrower’s family / empty]’.

Residential mortgage - occupancy unknown

Where the field agent is unable to ascertain who is in occupation of the property, the checklist can state ‘A field agent’s report was obtained on [date] but the agent was unable to ascertain who was in occupation of the property.’ If you are able to add ‘There has been no contact from any occupiers’ to the checklist, this will hopefully persuade the court to grant the possession order.

Residential mortgage - tenant in occupation

If the field agent’s visit confirms that there is a tenant in occupation of the property, and the mortgage is residential, lenders will need to carry out a thorough check to ascertain whether, since the loan was granted, the borrower has been given consent to let the property. This is to ensure that the content of the particulars of claim and checklist is accurate before the statement of truth on either document is signed.

Where the tenancy is unauthorised section 7 could state ‘The property is believed to be occupied by a tenant of the borrower. The borrower’s mortgage is a residential mortgage, not a buy to let mortgage and no consent to let the property has been given to the borrower’. In these circumstances, paragraph 3 of the particulars of claim should include (where known) the tenant’s name and paragraph 10 of the particulars of claim should state ‘A tenancy was entered into between the mortgagor and the occupier named in paragraph 3 above without the authorisation of the mortgagee.’

Buy to let mortgages

In accordance with paragraph 4.3, the PAP does not apply to buy to let mortgages and therefore no checklist needs to be completed. However, there might be some unease from Judges if this approach is adopted, particularly where paragraph 10 of the particulars of claim contains details of a tenancy. To prevent the matter being adjourned, lenders may wish to complete the checklist.

If the field agent’s visit confirms that there is no tenant in occupation, lenders could state in the checklist ‘A field agent’s report was obtained on [date] and this confirmed that the property was [occupied by the borrower / occupied by the borrower’s family / empty]’.

If the field agent’s visit confirms that there is a tenant in occupation of the property, and the mortgage is buy to let, lenders will need to review the terms of the tenancy to determine whether they comply with the terms on which consent to let was given. If the borrower has let the property on different terms, there is then an argument that the tenancy is unauthorised and the Court might be persuaded to grant a possession order.  

If there is a good reason to continue with a possession claim despite there being an authorised tenant in occupation of the property and if a PAP checklist is to be provided (it is not a requirement for buy to let mortgages) section 7 of the checklist could state one of the following:

  • ‘The property is occupied by an authorised tenant. Notice to end the tenancy was served on [  ] and expired on [  ]’.
  • ‘The property is occupied by an authorised tenant. The Claimant seeks a possession order not to be enforced pending a determination of the tenancy’. The Court is unlikely to allow enforcement of a possession order against an unauthorised tenant before the tenancy is determined and might otherwise adjourn the claim.

Paragraph 10 of the Particulars of Claim will need to state:

  • ‘A tenancy was entered into between the mortgagor and the occupier named in paragraph 3 above with the authorisation of the mortgagee. Notice to end the tenancy was served on [  ] and expired on [  ].’
  • ‘A tenancy was entered into between the mortgagor and the occupier named in paragraph 3 above with the authorisation of the mortgagee. The Claimant seeks a possession order not to be enforced pending a determination of the tenancy.’

If there is no tenant in the property, paragraph 3 of the particulars of claim can confirm that the property is believed to be empty / or that the borrower is in possession and paragraph 10 of the particulars can be left blank. 

Competition in the mortgage sector

On 7 October 2015, the Financial Conduct Authority launched a ‘Call for Inputs’ on competition in the mortgage sector. The Call for Inputs provides an opportunity for interested parties to help the FCA identify potential areas where competition may not be working well and could be improved. For more information, see our detailed briefing FCA issues Call for Inputs as first step in review of competition in mortgage market.

Increase to the minimum debt for statutory demands and bankruptcy petitions

On 1 October 2015 the minimum debt upon which a creditors' bankruptcy petition can be presented increased from £750 to £5000 and the threshold for serving a statutory demand on an individual debtor (as a precursor to bankruptcy) also increased to £5000. 

The changes, made under The Insolvency Act 1986 (Amendment) Order 2015, do not affect corporate insolvency proceedings.  The threshold for issuing a winding up petition for corporate debtors remains £750.

Land Registry contact details - change of email domain

On 30 January 2016, the staff and group email addresses for the Land Registry will change. The Land Registry will remove "gsi" from the email address, changing it from @landregistry.gsi.gov.uk to @landregistry.gov.uk 

Long Leases (Scotland) Act 2012 - conversion of ultra-long leases into ownership

On 28 November 2015 (the appointed day), the provisions of the Long Leases (Scotland) Act 2012 (the Long Leases Act) converted certain ultra-long leases into ownership. In general terms, a qualifying lease must be

  • registered in either the Land Register or the General Register of Sasines;
  • have an initial term of more than 175 years;
  • have more than 100 years to run at the appointed day where the property is mainly used as a residential dwellinghouse, or 175 years in other cases; and
  • have an annual rent of less than £100.

A lease with an initial term of less than 100 years can qualify if there was a condition requiring the landlord to renew the lease. Each part of a lease divided by partial assignation is treated as a separate lease.

The landlord's right of ownership of the land affected will be extinguished, as will the right of a mid-landlord where a sub-lease converts. Some leasehold conditions, such as facility and service conditions, will become real burdens on the new right of ownership; others will be automatically extinguished.

The full terms of the Long Leases Act can be found at legislation.gov.uk. Further details regarding the transition of arrangements can be found at the registers of Scotland website.

New edition of LPE1

A new edition of the Leasehold Property Enquiries form 1 was launched on 1 October 2015 by the Law Society in conjunction with a number of trade associations in the legal and leasehold sector, to assist with the streamlining of the conveyancing process by reducing the need for additional enquiries to be raised. Whilst not compulsory it is hoped that by more trade bodies endorsing it, the take up of the form will be increased, bringing its advantages to managing agents, conveyancers, landlords and buyers and sellers.

They have also introduced a buyers’ leasehold information summary in form LPE2. The LPE2 has been introduced following recommendations from the Competitions and Market's Authority Leasehold Study which looked to find ways of improving the information given to buyers of leasehold property about the financial obligations they were taking on.

Samples of the forms are available: LPE1 specimen form; LPE2 specimen form.

Changes to CML Handbook regarding building insurance

On 30 November 2015, the CML removed the reference to part 2 in the buildings insurance requirement section of the Lenders Handbook. The clause in part 1 requires conveyancers to make reasonable enquiries that buildings insurance cover has been arranged for the property no later than completion and to remind the borrower that they must have buildings insurance in accordance with the requirements of the mortgage conditions no later than completion and must maintain such buildings insurance cover throughout the term of the mortgage.

Changes have been agreed between the Law Society and the CML to the standard form of certificate of title to reflect this amendment.

Execution of Deeds

The Land Registry has changed its requirements for execution of a deed by foreign corporations (that is corporations outside the UK). Execution of deeds and documents by overseas bodies is regulated by the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 (SI 2009/1917). The Land Registry requires evidence of the corporate status of the overseas body to be produced (unless the body is already the proprietor of the land or charge) so that they can be satisfied as to the extent of the body’s powers to deal with the land.

An opinion letter from a lawyer practising in the jurisdiction was obtained and provided to the Land Registry as evidence of the corporate status. The recently updated Practice Guide 8 now confirms that an opinion letter will no longer be accepted as evidence. Instead, the Land Registry will require a certified copy of the corporate body’s constitution or a certificate in Form 7 provided by a qualified lawyer practising in the jurisdiction. Therefore, when obtaining opinion letters, it should be ensured that the lawyer includes the certificate as set out in Form 7 in Schedule 3, Land Registration Rules 2003.

Mortgagee sale and assets of community value (ACV)

The Land Registry has updated its Practice Guide 75 which relates to transfers under a charges power of sale to include confirmation on how a mortgagee sale is affected by a restriction protecting an ACV. The restriction entered by the local authority is in standard wording and is intended to ensure that the moratorium on disposals imposed by section 95 Localism Act 2011 is complied with. The wording on the title register states:

“No transfer or lease is to be registered without a certificate signed by a conveyancer that the transfer or lease did not contravene section 95(1) of the Localism Act 2011.”

The restriction catches a sale by a mortgagee in possession whether or not the charge was registered before or after the entry of the restriction, although the disposition itself is exempted under the Act. A certificate will be required to confirm the transfer does not does contravene section 95(1) of the Localism Act 2011 when the buyer submits their application to register the transfer. The property will remain an ACV and so the entry will remain on the register after sale.

Form CON29 and CON29O (Enquiries of a local authority and optional enquiries) – updated forms

The Law Society has confirmed that following a recent consultation it will be introducing new form CON29 and CON29O on 4 July 2016. The forms are being updated to include questions about new issues, such as assets of community value and the community infrastructure levy. Other proposed amendments aim to take account of recent legislative changes such as the Growth and Infrastructure Act 2013. In the meanwhile, if solicitors wish to raise questions about the matters to be included on the new forms, they may do so separately using the wording on the new draft forms.

For more information contact

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