Struggling with Mortgage Arrears?

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If you live in Scotland and have mortgage arrears, then your home may be at risk, so it is important to treat them seriously.

If you fail to do so, your mortgage provider may take steps to repossess your home.

However, before a mortgage provider can do this, they must take several steps that provide you with some level of protection

What is a Mortgage?

Mortgages are loans that banks and other financial institutions give you to buy your home.  Normally, it is referred to as the first loan on your home, but you can have a second or third loan also. These are normally referred to as secured loans and are not normally taken out to buy your home, but usually to consolidate other debts; or pay for any home improvements you may have had done. They may also have been given to allow you to free up and release equity in your home.

They are all similar, however, in that if you don’t pay them, the lender can call up the security and force the sale of your home.

What is a Standard Security?

A Standard Security is a type of security in Scotland that is made over land or property, such as a home. It is the only type of security over you home that Scotland recognises (although there may be cases of older pre-1970 securities).

A Standard Security over your home is something that a lender registers over you home when they lend you money. It is registered in the Land Register, alongside your title to the property (or in older cases it may be in the Register of Sasines). This basically means that although your home is owned by you, it is subject to a security. This means when your home is sold the securities must be cleared to give the next person a clean title to the property.  In practice this means the debt it secures must be paid off.

When you pay off your loan, any Standard Security is normally removed.

Standard Securities are different from inhibitions, which is what an unsecured lender can place over your home when you owe them money. Inhibitions do not allow a lender to sell your home without your permission, but like Standard Securities they must be cleared before a property is sold or remortgaged.

What happens when you get into Arrears?

When you miss payments and go into arrears with your mortgage or secured loans, then your account will go into arrears, unless you have agreed or been allowed a payment break by your lender.

If you do not have permission to miss a payment, this means you will be in breach of your loan and your lender should try and contact you.

Normally, when you are in arrears, the mortgage or secured loan provider should try and contact you to discuss how you propose to remedy the problem. They may even arrange for an agent to visit you at your home to discuss repayment solutions.  When this occurs, you can have the cost of this agent’s visit added to your mortgage.

They should also advise you that you can get independent advice from your local Citizens Advice Bureau or local advice agency.

They should also warn you that if you fail to keep up payments to your Mortgage/Secured Loan, your home could be at risk and may be repossessed.

Default Notices

If you fail to come to a solution and your arrears continue to grow, your lender may serve on you a Default Notice.

This is a notice to say you are in arrears and give you one month to remedy the default, by clearing the arrears.

Lenders do not have to serve you a Notice of Default, but it is one option open to them.

A Calling up Notice

Another course of action a Lender may take, instead of serving a Default Notice, or after they have served one, is to serve on you a Calling Up Notice. This is a legal document that gives you two months to pay off your mortgage in full, plus any interest and expenses that are owed. If you fail to pay these sums, then after the two months, the Lender may initiate court action to take possession of your home, and sell it and recover any sums owed to them.

Section 11 Notices

At the same time they serve the Calling Up Notice, Lenders must also serve a Notice on your Local Authority to advise them that you may be at risk of losing your home. This is so your local authority can contact you and provide you with assistance.

Pre-Action Requirements

However, where the property is a residential property and used wholly or partially as a home, a Lender cannot raise an action in Court until they have fulfilled what are known as Pre-Action Requirements. If a Lender cannot evidence that they have fulfilled these Pre-Action Requirements then this can be relied upon as a defence when they take you to Court.

Most lenders and their Solicitors now have well established procedures and checklists to ensure they have complied with the Pre-Action Requirements before they take you to Court. That is not to say, however, mistakes don’t get made, so if Court Action is raised it is important to check all the correct procedures have been carried out.

The main Pre-Action Requirements are the lender must act reasonably and provide you with information about your loan, how much your arrears are and what you can do to remedy the default.

They must also direct you to free sources of advice and must try and enter into a reasonable repayment plan and consider reasonable proposals that you make.

The full Pre-Action Requirements can be accessed here.

Dealing with Arrears

The first thing you should do if your are in arrears or suspect you will go into arrears, is contact your lender.

There may be steps they can take to help you. This is known as showing forbearance.

This could mean:

  • Accepting a reduced payment by you for a period, or allowing you to make interest only payments;
  • Offering  you a payment break, although this may not mean interest and charges may not be added to your debts;
  • They may also offer to capitalise any arrears, which means adding them to the end of your loan, and extending the number of payments you will have to make.

You should also seek independent advice from your local advice agency, as there may be benefits you are entitled to that could help you pay your mortgage.

Alternatively, you should check any policies you have to ensure you don’t have payment protection insurance or income replacement insurance.

Making an Offer of Repayment

Where you want to enter into a repayment plan with your lender, they will normally expect you to pay your mortgage in full and make an additional payment each month to clear your arrears.

And example of this is where your mortgage is £500 per month and you have £1,000 of arrears. If you wanted to clear the arrears off in ten months you would offer £500 per month, plus £100 per month towards your arrears.

You would, therefore, offer £600 per month.

What if your Lender rejects your Offer?

Where you make a reasonable offer and your Lender rejects it, it could be argued they have not complied with the Pre-Action Requirements and that maybe something a Court will consider if it eventually ends up in Court.

However, the question may focus on what is reasonable.

Generally, any offer that proposes to pay off all arrears within the lifetime of the original loan could be argued to be reasonable. So where there is 5 years left and your proposal offers to pay the monthly mortgage payment to clear the arrears within  5 years, this could be argued to be reasonable.

Taking you to Court

When a lender decides to take you to Court, they must be certain:

  • They have met the Pre-Action Requirements;
  • They have notified your Local Authority of their intentions; and
  • They have served a Calling Up Notice and the two months have expired.

They must then make sure they notify all Entitled Residents in the home of the action they intend to take, so they can get advice and be represented in court if they wish.

Entitled Residents are not just the Homeowner, but anyone who lives in the home as it is their main residence and are married to the Proprietor or in a civil partnership with them; or is in a common law relationship with them like a marriage or civil partnership.

However, an entitled resident can also be a former partner, who has lived in the home in the last 6 months, if a child of the relationship still lives in the home.

If Lenders fail to identify an Entitled Resident and a court Order is obtained, even if the other Partner is represented, it may be the Entitled Partner can get the Court Action recalled so they can make representations.

Does the Case have to Call in Court?

There is a rule that whenever a repossession action is raised in Court for a home, it must be called in Court  This means even if you don’t turn up, a Sheriff Court Judge must hear the case.

If an action is raised you and even Entitled Residents can be represented at the hearing. They can be represented by a Solicitor or what is known as an Approved Lay Representative.

Approved Lay Representatives are often Money Advisers and are normally authorised by your Local Authority of local Citizen Advice Bureaux.

Most local authorities, however, will fund a local law Centre or in court service that can represent you in eviction and repossession actions. You may be entitled to Legal Aid.

How will the Court Deal with Cases?

Normally Courts will want you represented, as it  involves a serious matter and will normally postpone a case to allow you to be represented, even if you turn up alone. It is always worth just going and explaining to the Judge you need time to get help, even if you can’t get Representation before the hearing.

Judges also will normally, continue cases if you need time to get help with claiming benefits.

Sheriff Court Judges can consider lots of different factors in deciding whether its reasonable to repossess your home. Some of the things they will consider are:

Your ability to pay your mortgage;

Both you and your Lender’s conduct;

Any offer of repayments you have made and whether these are reasonable;

Who lives in the home (elderly people, children, household members with illness and disabilities);

Any proposals you have to made to sell your home;

Any participation by you in a Home Rescue Scheme, like the Scottish Government Mortgage to Rent Scheme;

Whether you are in the Debt Arrangement Scheme.

Ultimately, it is for the Court to decide whether or not to allow your home to be repossessed.

Where Decree Granted but you were not Represented?

Where a court grants a court order and you were not represented by a solicitor or an Approved Lay Representative, you may be able to get the case recalled.

This means the Court may hear the Court Action again.

Even if another member of the Household was represented, but your weren’t as an Entitled Resident , you may still be able to get the Action recalled.

Will you be Evicted if a Repossession Order is Granted?

Even if a Court Decree is granted by the Court, this does not necessarily mean you will be evicted.

Some Lenders, even at this late stage may still enter a repayment plan with you, but hold the Repossession order over you and threaten to repossess your home if you don’t maintain the repayment plan.

Removal from your Home

If your Lender wants you to leave your home after they have obtained a Court Order to eject you, they must first serve you a 14 day charge telling you to leave the property.

If you have still not left at that point, you will then receive a Notice from Sheriff Officers notifying you they will remove you from the property, if you do  not leave voluntarily. This Notice must give you at least 48 hour notice, and specify the date and time you will be removed.

If you receive a Charge for Removal and have not arrange anywhere else to live, you should contact your local authority’s Homeless Services.

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