new rights to
prevent homelessness for mortgage arrears in Scotland
The Mortgage Rights (Scotland)
Bill was passed by the Scottish Parliament on 20 June 2001. It
received Royal Assent on 25 July 2001. It came into force in Scotland
on 3 December 2001 (see the Mortgage
Rights (Scotland) Act 2001 (Commencement and Transitional Provision)
Order 2001, SSI 2001/418; see also the
Mortgage Rights(Scotland) Act 2001 (Prescribed Notice) Order 2001,
The new Act creates significant
new rights for certain people in owner occupied households.
This short guide summarises the
existing legal position in Scotland, and sets out new rights
contained within the Mortgage
Rights (Scotland) Act 2001 (the Mortgage Rights Act). This guide
is not a definitive statement of the law. If you are in any doubt as
to your rights or require representation, contact a solicitor or
advice agency. You may be eligible for free help under the advice and
assistance or civil legal aid scheme.
Homeowners can lose their home
under three main routes in terms of the Conveyancing and Feudal
Reform (Scotland) Act 1970.
(1) Service of a Calling-up
Notice giving 2 months to clear arrears; if arrears are not cleared
thecreditor can proceed to sell the property without the need for the
courts permission. If the debtor does not agree to vacate
voluntarily, an ordinary action for repossession under section 24 of
the Conveyancing and Feudal Reform (Scotland) Act 1970 can be raised
to evict the homeowner and family.
(2) Service of a Default
Notice giving one months notice; followed by an ordinary action for
repossession and the power to sell under section 24 of the
Conveyancing and Feudal Reform (Scotland) Act 1970.
(3) By proceeding on the
debtor's default of standard condition 9(1)(b) of the standard
security (the 'mortgage') (which reads as follows: 'where there has
been a failure to comply with any other requirement arising out of
the security). In other words where the debtor has missed
mortgage payments. The lender's solicitors can lodge a
certificate with the court proceedings raised (typically, by way of
initial writ in terms of section 24, of the1970 Act) in terms of
section 24(2) of the 1970 Act. The certificate provides prima
facie proof of arrears (which could be rebutted if there was evidence
to the contrary).
The Mortgage Rights Act does not
alter these routes. Instead, it make provision for certain categories
of home occupiers to apply to the court for enforcement action to be
suspended. In other words, the Act provides an opportunity for the
occupier to repay mortgage arrears and retain possession of the
house. An application to suspend enforcement action under the Act is
known as a section 2 order.
The Act extends to loans which
are secured on the value of the property, known in Scotland as
standard securities or mortgages. Such loans may be a debtors
main mortgage or a second or home improvement loan, secured on the
value of the house.
can apply for an order?
Applications under section 2 can
only be made where the property is used for residential purposes and
is occupied by the applicant as a sole or main residence.
Accordingly, the Act does not
extend to second or holiday home. Likewise, the Act would not assist
the owner of a property which is let to tenants, and not occupied by
the owner as his or her main home.
Section 1(2) of the Act sets out
four categories of persons who can apply to the court for enforcement
action to be suspended.
the debtor (person with the
mortgage) or the owner.
the spouse of the debtor or owner
(known as a non-entitled spouse), where the house is used
by husband and wife as a matrimonial home.
the cohabitee of the debtor or
owner (someone living as husband and wife, including same sex relationships).
the former cohabitee of the
debtor or owner (someone formerly living as husband and wife,
including same sex relationships i.e where the debtor/owner has left
Before a 'former cohabitee' is
eligible to apply under section 2, the following additional
conditions must apply: (a) the debtor or owner must have left the
house; (b) the cohabitee must have lived with the debtor or owner for
6 months (prior to the debtor/owner leaving the household); and (c) a
child of the debtor/owner and cohabitee resides in the house.
A child is defined as someone
under the age of 16, and includes a stepchild and any person brought
up or treated by the cohabitee and the debtor/owner as their child.
can an application be made?
Because creditors have access to
more than one type of enforcement procedure, the time limit for
applications depends on which enforcement procedure is used. The time
limits for the four enforcement procedures are as follows:
where a calling-up notice is
served, an application must be made before the expiry of the
calling-up notice (if you have consented to this notice being
dispensed with or shortened, in any case the notice cannot be
shortened to less than one month).
where a default notice is served,
an application must be made not later than one month after the expiry
of the period specified in the default notice.
where proceedings have been
raised under section 24 of the Conveyancing and Fedual Reform
(Scotland) Act 1970 (remedies on default), an application must be
made before the conclusion of the proceedings.
where proceedings under section 5
(power to eject proprietor) of the Heritable Securities (Scotland)
Act 1894, an application must be made before the conclusion of the proceedings.
The term, conclusion of the
proceedings is not defined within the Act, however, in civil court
procedure this is taken to mean when the action has been disposed by
way of final decree. A final decree is only obtained once the court
has determined the question of legal expenses at the end of the case
which can be at the same time decree is granted, or after
decree is granted.
In any event, the best advice is
always to lodge an application as soon as possible. Where an
applicant fails to lodge an application in time, and is subject to
decree, it is possible to apply to the court for recall of the decree
on one occasion (by way of a 'Reponing Note' in terms of Ordinary
Cause Rule 8.1(3). There is case authority supporting this
position: GMAC-RFA Ltd v. Murray and Murray (Case Ref
A216/2002H) , Sheriff Principal Bowen Q.C, 9 October 2002, Glasgow -
reported in Issue 4 Hous LR, October 2003). Advisors should
always bear in the mind the separate possibility of a section
129 Consumer Credit Act 1974 application for debts under
£25,000 in certain circumstances (e.g. where the 2001 Act does
is an application made?
There are two ways in which an
application can be made.
where the creditor serves a
calling-up notice or default notice, an application must be made by
way of summary application procedure.
where the creditor raises
enforcement proceedings in the sheriff court, an application can be
to the sheriff made during the course of those proceedings.
Summary application procedure
proceeds by way of Initial Writ, and is an expedited form of sheriff
court procedure. Applicants should consult a solicitor immediately if
they wish to make an application by way of this procedure.
Where court enforcement
proceedings have been raised by the creditor, an application for
suspension can be made during those proceedings. Application is made
by way of a Minute, and is regulated by the following rules of court
(amending the Ordinary Cause Rules): Act
of Sederunt (Amendment of Ordinary Cause Rules and Summary
Applications, Statutory Applications and Appeals etc., Rules)
(Applications under the Mortgage Rights (Scotland) Act 2001) 2002,
SSI 2002/7. The Minute must be lodged in court with the
appropriate lodging dues (£26 as at 21 February 2003).
Those in receipt of IS, IBJA or who have appliued for civil legal aid
are exempt from lodging dues: see the Scottish Courts wesbite.
can the court consider?
The granting of a suspension
order under section 2 of the Act is entirely a matter for the
discretion of the sheriff. The test is whether the court
considers it reasonable in all the circumstances to grant
an order. However, in considering whether to suspend the enforcement
rights of a creditor, the court must have regard to the following
issues in particular:
the nature of and reasons for the default,
the applicants ability to
fulfil within a reasonable period the obligations under the mortgage,
any action taken by the creditor
to assist the debtor to fulfil those obligations, and
the ability of the applicant and
any other person residing at the house to secure reasonable
Where the above noted issues are
in dispute or require further evidence to be led, it may well be
necessary for the court to fix a proof (the civil equivalent of a
trial). Alternatively, the court may take the view that factual
issues are sufficiently agreed to be in a position to determine the
matter without the need for proof. Ultimately, procedure under the
Act will be developed as case law progresses.
As regards what constitutes a
reasonable period in which to repay mortgage arrears,
each case will turn on its own facts and circumstances. The
experience in England and Wales is that the ability to clear arrears
over the period of the loan should be looked at in terms of what is a
'reasonable' period: see Cheltenham and Gloucester Building
Society v. Norgan  1 All ER 449. This approach should
be advocated in Scotland stading the express wording of section
2(2)(b) of the MRA. See also the Govan Law Centre case of Abbey
National plc v. Briggs.
can the court do?
Where the court grants an order
under section 2 of the Act it can suspend the creditors
enforcement rights (a) to such extent, (b) for such period, and (c)
subject to such conditions, as it thinks fit. Proceedings may also be
continued, for example, to allow the repayment of arrears to be monitored.
While an order under section 2 is
in force, a creditor can take no further action. The effect of the
order while in force - is equivalent to the debtor never
having been in mortgage arrears.
The court is empowered to vary or
revoke an order made under section 2(1)(a) where requested to do so
by either creditor or applicant. Accordingly, where an applicant
fails to adhere to the conditions of an order, the creditor could
enrol a motion requesting the order to be revoked. Likewise, where an
applicants circumstances have changed (for example, a drop in
income) it would be possible for the debtor to go back to the court
(by way of motion) and request a variation of the order.
If in doubt, applicants should
take advice from a law centre solicitor, private firm or solicitors
or advice agency.
Dailly Solicitors at Govan Law Centre (updated 9 September 2003).