Mortgage Rights (Scotland) Act 2001

new rights to prevent homelessness for mortgage arrears in Scotland

the new rights

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, SSI 2001/419).

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 court’s 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 debtor’s main mortgage or a second or home improvement loan, secured on the value of the house.

who 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 the house).

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.

when 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 not apply).

how 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.

what 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 applicant’s 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 alternative accommodation.

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 [1996] 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.

what can the court do?

Where the court grants an order under section 2 of the Act it can suspend the creditor’s 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 applicant’s 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.