Section 2 orders

Section 2 orders were introduced by the Mortgage Rights (Scotland) Act 2001. If granted, these would stop the lender from taking enforcement action against the borrower where they were in default on their mortgage agreement. This could give the borrower some time to clear their arrears or remain in their home until they find alternative accommodation.

Section 2 orders can only be used in repossession actions which started before 30 September 2010. Section 2 orders were repealed on 30 September 2010 by the Home Owner and Debtor Protection (Scotland) Act 2010 [1] which introduced pre-action requirements that lenders have to follow before they can go to court to repossess a borrower’s home.

If the repossession action started before 30 September 2010 then it may be possible to apply for a section 2 order.

The following restrictions apply:

The property:

• this must be the main residence of the person applying for the order [2]

The applicant can only  be:

• the borrower or the owner

• a spouse/civil partner of the borrower/owner if the property is the main family home

• a cohabitee of the borrower/owner

• a former cohabitee of the borrower/owner. [3]

If the applicant is a former cohabitee then further conditions must be met:

• the borrower/owner must have left the property

• the former cohabitee must be living in the property currently and have lived with the borrower/owner for six months prior to them leaving the home

• a child/stepchild (under 16) of the borrower/owner and the former cohabitee must also live in the property. [4]

Given that section 2 orders were repealed on 30 September 2010 the circumstances in which they can be applied for are very limited. For court orders for repossession granted before 30 September 2010 it may be possible proceed by way of a reponing note where decree in absence has been granted and then apply for a section 2 order.

Given that an application for a section 2 order must have been made before the expiry of a calling-up notice it is unlikely that one can be granted, given that they expire after two months. [5] Similarly, an application for a section 2 order must have been made one month after the expiry of a notice of default, therefore it is unlikely that one will be granted in these circumstances. [6]

Where a lender has applied to court before 30 September 2010 by way of initial writ and section 24 notice a borrower can apply for a section 2 order up until the conclusion of the proceedings – i.e. up until decree is granted. [7] It is unlikely that this will be a common occurrence. It is also possible for a defender to lodge a section 2 order application by way of applying to court with a reponing note. This is only possible if decree was granted against the defender in their absence before 30 September 2010. [8]

Courts will only grant a section 2 order if it ‘considers it reasonable in all the circumstances’ to do so. [9]  What is ‘reasonable’ depends on the particular circumstances of the case, however, the court must take into account:

• the nature and reasons for the default

• the ability of the applicant to meet their obligations under the mortgage agreement

• any action taken by the lender to help the borrower meet their obligations

• the ability of the applicant, or anyone living with them, to find reasonable alternative accommodation and avoid homelessness. [10]

Once granted, the clerk of court will send a notice describing the decision along with a copy of the order to the Keeper of the Register of Inhibitions and Adjudications where it will be recorded. [11] This is to ensure that the lender does not try to repossess and sell the property while the section 2 order is in force.

A section 2 order suspends the lender’s right to pursue enforcement action for as long as the court sees fit. [12] This allows the applicant to stay in the property whilst repayment arrangements are monitored or whilst they find alternative accommodation.

In cases where the person applying for the section 2 order is not the borrower certain conditions apply.

Where the applicant is the spouse, civil partner or cohabitee of the borrower

In this scenario where there is no joint mortgage the spouse, civil partner or cohabitee has the right to assume responsibility for mortgage payments. [13] This is a right, not an obligation, and other conditions could be attached to the section 2 order, eg suspending enforcement action to give time to find alternative accommodation.

Where the applicant is the former cohabitee of the borrower

In this situation it has been suggested that given the extent of the court’s discretion the applicant can ask the court to allow him/her to remain in the property and pay rent. However, this raises questions as to the relationship between the occupier and the lender – i.e. is this a relationship of landlord and tenant and what type of tenancy exists? However, it is more likely that the applicant will ask the court to give them time to find alternative accommodation. [14]

The lender or applicant can apply to court to have a section 2 order changed or revoked. [15] For example, the lender may wish to have the order revoked if no payments are being made towards the mortgage or the arrears, and a borrower may want to vary the order to extend it for a further period of time.

The number of times that a section 2 order can be applied for does not seem to be limited, meaning that should a lender be successful in an application to revoke an order, the borrower may be able to apply to court for a further order. This may be appropriate when the borrower has experienced a change of circumstances, eg they have had a reduction in their income.