An Inhibition in Scotland is a form of diligence, which means a formal, legal debt recovery tool.
It allows a creditor to stop you from selling your home, or re-mortgaging it, without paying them. It does not give them the right to sell your home.
It is a preventative diligence, in that it prevents you from doing something with your assets, such as selling land or remortgaging your home.
How do Inhibitions Work?
How an Inhibition works is it is made against an individual, not a specific property, and registered in the Register of Inhibitions.
It affects all property that are heritable, such as land and buildings, but does not effect property that can be subject to an Attachment Order.
The way an Inhibition works is anyone who is buying a building or land in Scotland has to have their solicitor check the Register of Inhibitions (see here for more information) before any sale can go through.
If the person who is selling the land or building has an Inhibition registered against them, the buyers solicitor will not proceed with the sale, as to do so could put at risk the buyer’s title to the property.
The person who has the Inhibition registered against them, therefore, has to agree with the creditor who registered it that they will be paid off in full before the sale of the property completes.
Who can use Inhibitions?
Inhibitions can be registered by any Creditor who has obtained a decree or a Document of Debt against someone.
A Decree is a Court Order and has to contain an order for payment of money for an Inhibition to be registered.
Alternatively the Court Order may contain alternative orders, such as the return of a car or failing which, the payment of money.
Where a decree contains two options like that, an Inhibition can still be registered, but on the return of the car, or the payment of the money, the lender is obliged to recall the Inhibition.
Inhibitions can also be registered with a Document of Debt, which may be a legal agreement that has been registered for preservation and execution in the Books of Council and Session. This means the case never calls in Court.
The process used to register this type of Inhibition is called Summary Diligence and can be used for credit union loans, landlord leases and landlord guarantees.
It cannot be used for consumer credit debts that are regulated by the Consumer Credit Act 1974.
Summary Warrants and Inhibitions
This is because Inhibitions are a type of land diligence and land diligence cannot be used with the Summary Warrant procedure.
This does not prevent Local Authorities or HMRC using Inhibitions altogether, it just means if they want to, they need to raise a normal court action, like other creditors do, and get a Decree.
Registering an Inhibition
When a Creditor has a Court Order or Document of Debt, they do not need to serve a Charge for Payment before using an Inhibition.
They only need to serve a Notice of Inhibition to the Consumer to say they intend to register the Inhibition in the Register of Inhibitions. After 21 days the Inhibitions becomes effective.
All property such as land and buildings owned by the Consumer, on the date the Notice is served, is caught by the Inhibition.
What Powers does a Inhibition give a Creditor?
A Creditor that register an Inhibition has the power to stop the person that owes them money from:
• Selling their property;
• Securing more debt over their property, (including re-mortgaging it);
• Gifting their property to someone else.
It does not give the Creditor the right to force the sale of the property or force the owner to sell it.
Where the property is in joint ownership, the Inhibition only affects the owner who has the Inhibition registered against them.
In practice this does not mean the other owner can re-mortgage, but does mean if the property is sold, the debt owed to the Inhibiting Creditor, can only be paid from the debtor’s share of the equity.
The other owner must be paid their money in full.
How long does an Inhibition last?
Inhibitions do not last until a debt is paid off, although on the payment of a debt, they should be removed by the creditor.
Inhibitions automatically expire after five years.
However, the Inhibiting Creditor can re-register the Inhibition after the five years.
However, if the Inhibiting Creditor forgets to re-register the Inhibition, the owner of the property can sell it unencumbered by the Inhibition.
How does the Debt Arrangement Scheme affect Inhibitions?
The rules governing the Debt Arrangement Scheme are very clear.
Once someone is in a Debt Payment Programme, it is not competent for a creditor to execute diligence.
Section 4 (2)
It is not competent….
(b) subject to subsection (2A),other than under subsection (2A), to commence or execute any diligence to enforce payment of…..any debt owed by a debtor who has debts which are being paid under an approved debt payment programme.
Debt Arrangement and Attachment (Scotland) Act 2002
This includes registering an Inhibition, although some Creditors argue it does not apply to Inhibitions.
It does not, however, prevent a Creditor relying on an Inhibition that was registered prior to the Debt Payment Programme being approved.
Where there are doubts, legal advice should be sought.
Inhibitions and Bankruptcy and Protected Trust Deeds
When the debtor’s liability for the debt is discharged at the end of the Protected Trust Deed or Sequestration, it should be removed by the Inhibiting Creditor.