A recent ruling by Glasgow Sheriff Court has again underscored the importance of complying with the “Pre-Action Protocols” set out in the Home Owner and Debtor Protection (Scotland) Act 2010, before Court action for repossession of secured property is commenced.
In Northern Rock Asset Management v Millar & RBS v McConnell, Govan Law Centre represented the interest of two customers who challenged the repossession action which had been raised against them. Govan Law Centre argued that the repossession actions were incompetent, on the basis that the lenders had failed to comply with the Pre-Action Protocols.
The Home Owner and Debtor Protection (Scotland) Act 2010 puts more onerous requirements on a lender who wishes to enforce a security over property that is used to any extent for residential purposes.
When seeking to enforce a security, a lender must:
- provide the borrower with certain prescribed information as soon as the borrower enters default;
- serve the calling up notices not only on the borrower but also on the owner (if different) and any occupiers;
- make reasonable attempts to agree repayment proposals with the borrower; and
- give proper consideration to any settlement proposals put forward by the borrower.
The lender must comply with the Pre-Action Protocols prior to service of the calling up notices and throughout the proceedings for enforcement of the lender’s security.
This case focussed on the first of the requirements listed above. A letter setting out the prescribed information was sent to the customers before the calling up notices were issued on the basis that they had “defaulted” under the terms of the security by failing to meet their monthly mortgage payments. After expiry of a set notice period, Court proceedings were raised. Govan Law Centre argued that “default” was not restricted to failure to meet mortgage payments but also occurred when the borrowers failed to comply with the calling up notices. Accordingly, they argued, the prescribed information should have also been sent to the customers after the set notice period had expired. They argued that the lender was obliged, in terms of the Pre-Action Protocols, to engage in a “last ditch” attempt to agree a resolution with the customers in the hope that Court action could be avoided.
Sheriff Deutsch determined that default for the purposes of Pre-Action Protocols has the same meaning as it has for security enforcement in general. Therefore a default arises (i) where there is a failure to comply with a term of the security; (ii) where there is failure to comply with a calling up notice; and (iii) on the insolvency of the proprietor of the security subjects. Accordingly, the Pre-Action Protocols must be complied with if any of these three events occur.
The judgement provides interesting reading for lenders and their solicitors. It serves as an important reminder about the importance the Courts place on the Pre-Action Protocols. Lenders must not only comply with these but also be in a position to evidence compliance to the Court. Particular attention should be paid to keeping files in order. Having a neat customer file with a record of telephone calls and copies of letters sent to the customer will reduce difficulties in any future Court action. Our advice remains that the prescribed information should be provided to customers before and after calling up notices are issued, to give customers every opportunity to contact their lender with repayment or settlement proposals before Court proceedings are commenced.
If you wish to discuss this article or how your Pre-Action Protocols stack up please contact Gillian Carty on 0131 473 5138.