Reform update - land attachment and sale

The new diligences – land attachment and sale
 
In last week's bulletin we looked at the new diligences of land attachment, money attachment and residual attachment and how these diligences are effected. In this bulletin we will examine how the new diligence of land attachment can be enforced by sale to allow the attached asset to be converted into cash to satisfy the debt.

14th December 2006

The new diligences – land attachment and sale
 
In last week's bulletin we looked at the new diligences of land attachment, money attachment and residual attachment and how these diligences are effected. In this bulletin we will examine how the new diligence of land attachment can be enforced by sale to allow the attached asset to be converted into cash to satisfy the debt.

As we confirmed last week, the notice of land attachment can be registered and the land attachment is created 28 days after the notice is registered. During the 28 day period the creditor has the same protection as an inhibiting creditor but once the land attachment is effective it provides the creditor with a right of security for the debt.  A period of 6 months from the date of registration of the notice of land attachment must elapse before an application to sell the attached property can be made.

Once the land attachment has been created, and the 6 month period has expired, the creditor apply to the sheriff for a warrant to sell, providing the outstanding debt is at least £1500.  

The basic scheme leading to sale is as follows:-

  • Decree or document of debt - authorising use of land attachment
  • Creditor provides debtor with debt advice and information package
  • Court messenger instructed by creditor
  • Charge to pay served, not satisfied
  • Notice of land attachment registered in property and personal registers
  • Land attachment created 28 days after notice registered
  • Sale applied for six months after notice registered
  • Preliminary hearing on sale application
  • Supporting evidence lodged with court - valuation report, up-to-date property search, redemption statement for existing secured loans
  • Full hearing on sale application
  • Appointed person markets and sells property
  • Sale price applied to all applicable debts including attached debt
  • Appointed person reports to court on sale
  • Court audits the report

A particularly contentious aspect of the new diligence in consultation was whether it should apply to individuals' homes.  The Executive has decided that family homes should not be exempt from the new diligence.  The Bill does, however, attempt to balance the competing interests of creditor and debtor by requiring sheriffs to take a series of additional factors into account when assessing an application for a warrant for the sale of a family home, including: reasons for the debt, action taken by the creditor to assist the debtor, and the ability of those in occupation of the house to secure reasonable alternative accommodation. 

The Bill provides that a land attachment can be recalled or restricted on application to the sheriff.  Recall is available where the land attachment is invalid, has not been executed properly, has ceased to have effect, or where the creditor is obliged to discharge the attachment (all outstanding sums having been paid), but has failed to do so.  The sheriff is, in addition, entitled to restrict a land attachment, even if it is valid, if more land than required has been attached, and it is reasonable to do so.

Land attachments last for 5 years but they can be extended by the creditor registering a notice of extension.  Creditors are entitled to extend a land attachment in this way, every 5 years, indefinitely. 

Increased insolvencies?

There has been a persistent criticism throughout all consultations on land attachment that the new diligence will act as a perverse incentive to creditors to sequestrate/liquidate the debtor, and as a result increase the level of insolvencies in Scotland. 

The reasoning is as follows: if land attachment is used frequently as a way of securing debt, then one result is that other (unsecured) creditors are at risk of major and potentially valuable assets (land) being put beyond their reach.  This is because attaching land through the new diligence creates a right of security for one creditor only for a hitherto unsecured debt.  As a way to avoid this result creditors will look to insolvency procedures, which pool the debtor's available assets for the benefit of all creditors.  The Bill itself provides an extra incentive for creditors to use insolvency procedures as land attachments registered within six months before the date of sequestration/liquidation will be ineffective in a question with the trustee in sequestration/liquidator. 

The Executive has stated publicly that the package of reforms to bankruptcy and diligence is designed to ensure that those who can pay do pay. The Executive has so far been unable to explain satisfactorily why land attachment will not give rise to increased insolvency, which seems counter to the overall aim of the reform package.