Attention Lenders!

On Friday 13 April 2012 within Glasgow Sheriff Court, at the instance of Platform Funding Limited (PFL), a case for repossession of security subjects proceeded to a full hearing on evidence, namely a civil proof in Scotland (akin to a trial in England). Irwin Mitchell Scotland LLP were not party to the action.

In this particular case, Decree for the ejection of the borrower and repossession of the security subjects was refused by Sheriff Gilchrist upon hearing the respective parties’ evidence.

The Sheriff heard that the majority of the Defender’s/borrower’s mortgage was being paid by the Department of Works and Pensions, albeit that there was a minimal shortfall on payment. It was PFL’s position that they were not satisfied that the Defender could sustain the payments due under the mortgage account. In particular, PFL argued given that:

1. The Defender had not personally made any payments to the account since 2010.
2. The action had been raised 2 years two ago they were entitled to Decree for possession.

Sheriff Gilchrist did not agree.

Upon conclusion of the parties’ evidence and legal submissions, Sheriff Gilchrist refused PFL’s request for Decree regardless of the fact that it would take six and half years for the Defender to repay the mortgage arrears. In reaching their judgement, Sheriff Gilchrist followed the landmark English Court of Appeal decision of Cheltenham and Gloucester Building Society v. Norgan [1996] 1 All ER 449. This is a persuasive authority in Scotland (rather than binding on a Scottish Court) and the Sheriff relied on the proposition that the starting point for determining a ‘reasonable period’ for clearance of arrears was the remaining term of the mortgage, which, in this case was 9.5 years.

On refusing Decree, the Sheriff awarded expenses against PFL for the cost of the proof, and suspended the lender’s enforcement powers. Thereafter, the case continued for six months to monitor payments of arrears.

What arises from this judgement, is that it is becoming increasingly apparent that Sheriffs are likely to consider the remaining term of the mortgage to be a bench mark for determining a reasonable period for repayment of the arrears, rather than a lesser period of, for example, 2, 3, 5 years etc. In light of this decision, we would urge lenders to consider the remaining term of the loan when deciding whether to accept any offers of repayment, so as to avoid a similar situation as that of PFL. If an offer of repayment is agreed then the case can simply be sisted (i.e. frozen) for payments to be monitored, thereby minimising ongoing court expenses. If, subsequently, a borrower breaches a payment arrangement, this will, in our view, add weight to the action for possession - if the court is satisfied that the lender acted entirely reasonably in accepting the payment arrangement.

Myra Scott, Partner, Glasgow

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