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National Homeless Advice Service

Shelter’s Specialist Debt Advice Service: Second Mortgage Arrears Success Story

Posted by natalie_pearson January 07, 2020

Shelter’s Specialist Debt Advice Service helped an adviser achieve a fantastic result in this second mortgage case. Michael Agboh Davidson, an adviser at Citizens Advice Bradford contacted us in April 2019 for a second opinion on a mortgage possession case. His clients were about to be evicted due to arrears on a second mortgage they’d taken out in 2006 to pay for a new kitchen. The borrowers were very distressed at the thought of losing their home; one of the couple was in hospital at the time the matter went to court and the other had attempted suicide more than once in the preceding year. They were living in the house with an elderly dependant father.

The couple had borrowed £20k and paid back an amount equal to that, but they were being chased for an extra £79k in interest and default charges. In poor health and nearing retirement age they had no way of clearing the balance, and the lender was about to enforce a possession order made in 2009. Michael had helped his clients make a proposal for payment of the contractual monthly instalment plus an amount towards the arrears, but the lender rejected it, saying that the mortgage term would end in 2 years so the offer didn’t meet the test that the arrears should be repaid within a “reasonable period” as set down in s36 Administration of Justice Act 1970.

SDAS spotted straight away that the lender was applying the wrong test. The loan had been regulated by the Consumer Credit Act 1974 at the point it was executed, so it’s clear a time order should be available. In fact, the time order provisions in the Act have been extended so they apply to all Regulated Mortgage Contracts. An application to suspend the warrant was drafted by SDAS, and the case was adjourned to allow the judge to consider the client’s proposal.

In the meantime, Michael made a Subject Access Request (SAR) to the lender. Rules introduced in October 2008 mean that, for most second mortgages executed prior to the change in regulation brought about by the Mortgage Credit Directive on 21 March 2016, the lender should have been sending statutory statements and notices under s77A and s86B Consumer Credit Act 1974. The clients reported having received no statements for some years, and SDAS have come across a number of cases where the failure to send statements has led to the lender having to write off arrears of interest. This case was slightly different and more serious, as a result of the now 10-year-old possession order. As suspected, the SAR came back showing long gaps in the notice periods.

When the case came back to court in July 2019 it was to hear an application to set aside the possession order and recalculate the arrears. The clients were represented by Shelter. The application was successful, and the court ordered the lender write off £67k in interest and default sums due to their failure to send the required notices. Payments for the remaining sum were set at an affordable rate, and the clients will be mortgage free before they retire.

SDAS have produced a webinar and written resource for advisers dealing with cases where a lender has failed to send the statutory notices under the Consumer Credit Act.

The Shelter Legal pages Second Charge Loans and Time Orders have been updated in January 2020 to including changes to the law and regulation of mortgages as part of an overhaul of the Home Ownership section of the website.