The current economic climate has seen many properties repossessed by lenders that are increasingly concerned about the downturn in property values and the risk of a drastic reduction in the equity (if any remains) of properties. The government has responded to the ‘credit crunch’ by introducing a pre-action protocol for both money and possession claims by lenders on residential properties. The protocol came into effect on the 19 November 2008 and applies to proceedings commenced after that date.
The protocol seeks to ensure that the lender makes every attempt to assist the borrower prior to possession proceedings being commenced. Such assistance should include pre-action contact with the borrower in an attempt to reach an agreement, which could lead to a change in the mortgage type or payment date or some form of payment holiday so that the borrower has a realistic chance of complying with his obligations.
However the protocol fails to close a loophole available to lenders intending to enforce their security on a residential property without obtaining a court order. In some cases lenders appoint a receiver under s109 of the Law of Property Act 1925 to sell the property, causing the borrower and even their tenants, who were originally occupying it to become trespassers. Mr. Justice Briggs ruled in October in Horsham Properties v Clark & Beech (2008) EWHC 2327 (Ch) that this did not breach the borrower’s rights under the European Convention on Human Rights.
No doubt lenders will find that the new protocol is an obstacle to them obtaining possession expeditiously. However, the protocol provides no protection for buy to let mortgages and thus mortgage companies may be more aggressive in this area by way of compensation. Whilst the courts have recognised that this is an area of concern they are powerless to do anything and as such the government will need to step in if landlords are to be afforded similar protection.
Agents that are contacted by Section 109 receivers should request that the receiver confirm instructions in writing. Upon receipt of the written instructions they may then comply with the same despite any objections raised by the landlords. Due to the Data Protection Act 1998, the receiver will not be in a position to discuss the details of the possession with the Agents unless the landlord’s specific consent is sought which is unlikely, and therefore obtaining the written instructions is paramount.