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Unreasonable debt law could cost Scots their homes
By Mike Dailly
(article published in The Herald on 18 October 2006)
We are all familiar with the rider: "Your home may be repossessed if you do not keep up payments on your mortgage". But under the Scottish Executive's proposals that warning might become: "Your home may be repossessed if you do not pay a debt over £3,000". Sound harsh? Well, that's because the new 'land attachment'makes the old poinding and warrant sale look like legal candy floss.
Don't panic, the Scottish Executive is only proposing the loss of your home if you don't pay a credit card bill or consumer debt. It could be worse. You might spend money on cigarettes, drink too much booze or eat greasy junk food. That could make you ill so we have public health warnings. And that works doesn't it? So perhaps all we need to accompany the new land attachment is a suitable warning?
The Scottish Minister in charge is Allan Wilson MSP, Deputy Minister for Enterprise. On 26 September 2006, he gave evidence to the Scottish Parliament's Enterprise Committee that land attachment was nothing to worry about. There had been a similar debt enforcement procedure in England and Wales for years - known as the 'charging order' - and Mr Wilson assured the nation that, based upon the English figures, Scotland could sleep easy:
"My information is that in 2004 there were 45,562 applications for charging orders in England and Wales, which related to the attachment of all types of properties, including homes, but that there were fewer than 500 sale orders, not all of which turned into sales. Extrapolating from the English figures-I acknowledge that doing so is not a precise science-would suggest equivalent figures for Scotland of about 4,500 land attachments and fewer than 50 sales. That is the scale and nature of the issue that we are discussing" http://www.scottish.parliament.uk/business/committees/enterprise/or-06/ec06-2202.htm#Col3281
But there is a problem with Mr Wilson's evidence. A charging order is a discretionary procedure while land attachment is mandatory. You cannot extrapoloate from English figures unless you are introducing a similar law. The Scottish Executive is introducing a procedure with considerably less protection than exists in England and Wales.
Firstly, if a creditor wants a charging order in England they have to apply for it and the debtor can object. The court will consider whether it is reasonable to grant an order by considering all the circumstances of the case, including the personal circumstances of the debtor and his or her family. The debtor can ask for time to pay or suggest that an earnings arrestment be made, and if so, no charging will be granted.
In contrast, a creditor in Scotland who takes a debtor to court and obtains decree for payment of £3,000 or more can simply register that debt. Immediately the debtor is prevented from selling their home. After 28 days the debt becomes a 'land attachment', which means it is secured - like a mortgage - on your home. But is gets worse. Much worse.
If a creditor in Scotland waits 6 months after acquiring a land attachment they can apply to the Sheriff Court for a warrant to sell your home. The court can delay the sale for up to one year or refuse the application but only if it would be 'unduly harsh'. Losing your home is by definition harsh, so arguing that the loss of your house is 'unduly harsh' is not so easy.
Where a creditor with a charging order in England applies for the sale of a house the debtor can still make an arrangement to repay the debt and avoid losing their home. Under the Trust of Lands and Appointment of Trustees Act 1996, an English court can refuse an order for sale if it thinks the interests of the family to stay in their home outweigh the interests of the creditor. But in Scotland a sheriff will not be allowed to act reasonably.
So the claim that there will be around 4,500 land attachments and fifty repossessions in Scotland might be true if Scottish courts were allowed to refuse unreasonable applications. But the Scottish Executive has got this wrong. Given the mandatory nature of land attachment it is likely creditors will rush to use this power. It is probable that land attachment will become as popular as the abolished remedy of poinding - over 23,000 each year in its hay-day.
Last month the Parliament's Enterprise Committee had an opportunity to avert this disaster. Scottish law centres, working with Citizens Advice Scotland and Shelter Scotland had backed two amendments to the Executive's Bankruptcy and Diligence Bill: one to exempt the debtor's home from land attachment and the other to give the court the power to act reasonably - as in England and Wales. The Labour MSP, Karen Gillion withdrew the exemption amendment at the last minute, while all Labour and Lib Dem MSP voted against the 'reasonableness' power.
Unless the Scottish Executive provides Scottish homeowners with the same protection that homeowners in England and Wales enjoy, we could be in the running to become Europe's repossession capital.
(c) Mike Dailly, Principal Solicitor, Govan Law Centre