England’s Charging Orders Could be On Their Way to Scotland

By Alan McIntosh

A recent report has found that four large finance banks have been abusing charging orders in England and Wales, supplying consumers with misleading and oppressive paperwork.

Charging orders are a legal method of debt enforcement which exist in England and Wales and allow unsecured lenders to secure a consumer’s unsecured debts over the customer homes, resulting in some people losing their homes for as little as £600 of debt.

The only similar enforcement methods that exist in Scotland are inhibitions and adjudication for debt. Inhibitions are a type of “diligence”, as legal enforcement is called in Scotland, which allows a bank to secure a debt over a consumers home once they have a court order against the consumer. Unlike, with charging orders, however, lenders cannot use an inhibition to force a borrower to sell their home, but they can refuse to allow them to sell it or secure more debt over it until their debt has been paid. The other type of diligence that can be used in Scotland in Adjudication for Debt, which dates back to the 1661 Diligence Act, a piece of legislation passed by the old Scottish Parliament.

Adjudications for debt are extremely rare in Scotland, although they have become more common since 2004. These allow a creditor to effectively secure the debt over the borrower’s home and then take ownership of the home, if the debtor hasn’t settled the debt, after ten years.

A new enforcement method exists on the Scottish statute books and was introduced by the Bankruptcy and Diligence Etc (Scotland) Act 2007. This is Land Attachments. Unlike with inhibitions, lenders will be able to use land attachments to force the sale of a debtor’s home and unlike with adjudication for debt, which will be abolished when land attachments are introduced, the creditor will not have to wait ten years before they sell the home.

Creditors will be able to use land attachments for debts as little as £3,000 and after six months will be able to apply to the court for the power to sell the borrowers home. Unlike with charging orders in England and Wales, which give debtors there a number of different protections and allow the courts a lot of discretion in deciding whether or not to allow a sale to go ahead, land attachments will not. Providing the debtor has a court order for £3,000 or more and providing they have served a legal document on the debtor called a charge for payment, they will be able to attach someone’s home. After six months they will be able to apply to the court for a warrant to sell the home. The only defences open to the debtor will be either they have paid off the debt or it is unduly harsh on the debtor or their family to sell their home. Considering losing your home for a credit card debt is likely to be deemed harsh anyway by its nature, being able to prove it is unduly harsh is likely to be a hard defence to prove.

Land attachments as yet have still to be implemented, primarily as the current SNP government has refused to implement them. However, they remain on the statute books and there is increasing pressure from banks for them to be commenced. Currently a consultation is being planned by the Accountant in Bankruptcy’s office and is likely to begin after the next Scottish Parliament elections.

Some proposals which are being looked at is increasing the amount a borrower has to be owed before a land attachment can be executed, that is increasing it from £3,000.  However, what is contradictory here is the Scottish Government has recently introduced  legislation in the form of the Home Owner and Debtor Protection (Scotland) Act 2010, which will make it much more difficult for a bank with a mortgage or secured loan over a house to repossess it.  In some circumstances it is likely they won’t be able to, even where there are arrears or it will take between 12-18 months before they can eject the occupiers and sell the home.

It, therefore, seems bizarre that we are seriously considering implementing legislation which would allow lenders like Wonga loans to place a land attachment on someone’s home and then sell it after six months, with little or no protection for the home owner.

Most lenders are saying if they get the power to use land attachments, they won’t use them excessively, but as can be seen in England and Wales, where charging orders have increase over the last few years from 45,000 to 164,000, this is clearly not true. They have also claimed they will not use them to force the sale of properties, but what that means is they will use them instead to threaten home owners with having their homes sold if they do not succumb to their unreasonable demands for lump sum payments and payments that cannot be afforded.

In 2007 when land attachments were passed by the Scottish Parliament, we were all in a completely different place. There was a Lib Lab coalition in power and the economy was still going well, with house prices still booming. Even recently discharged bankrupts could get mortgages. Where we are now however, makes land attachments completely unacceptable. It seems bizarre the Accountant in Bankruptcy and the Scottish Government still feel this legislation should still go out to consultation and that it would ever be acceptable that an unsecured lender, in so many ways, should be in a stronger position than a lender who has bothered to secure his lending over the borrowers home.

It may be necessary to implement land attachments for commercial properties, not used to any extent for residential purposes, but to introduce them now so they can be used against the principal home of a debtor is never going to be acceptable.