Handing back the keys
Voluntary surrender, whereby the borrower gives the lender possession and lets them sell the property, should be considered only as a last resort. This page looks at situations in which voluntary surrender may be a viable option.
Is handing back the keys a viable option?
Voluntary surrender should only be used as a last resort to avoid incurring further arrears and to circumvent the costs and stress of court action. For example, the borrower may choose to hand in the keys:
where there are substantial arrears and it is not possible to make a repayment arrangement with the lender, or
where there is substantial negative equity on the property and/or the borrower cannot find a buyer for it, or
where there is no possibility of assistance from the Scottish Government's mortgage to rent scheme.
Lenders may well be resistant to this option and insist that the case goes to court. Of course, once the lender has the court decree, they would have no natural objection to the debtor handing in the keys and leaving as soon as is possible, without them having to instruct sheriff officers to perform an ejection.
Voluntary surrender procedure
The Conveyancing and Feudal Reform (Scotland) Act 1970 provides three routes whereby the lender can gain legal permission to sell a debtors house:
Section 24 court action
notice of default procedure
calling-up notice procedure.
More information can be found on the page on mortgage arrears and court action.
The first procedure involves taking court action.[1] However, changes brought in by the Home Owners and Debtor Protection (Scotland) Act 2010, the calling-up notice procedures allow the lender the right to sell a borrower's home without first going to court (provided the borrower agrees to leave).
Calling-up notice procedure
A calling-up notice gives the borrower a notice period of two months in which to settle the debt before the lender can take action to repossess the property. [2] If the borrower fails to comply with the notice, this will constitute default and the lender can seek a warrant from the court to sell the property. [3]
The borrower can consent to shorten this notice period to one month [4] to avoid accruing further debts, and hand in the keys as soon as the notice period is up. However, in order to shorten the notice period, the borrower must acquire the written consent of their spouse, civil partner or cohabitee. [5]
It is important to note that voluntary surrender will not necessarily free the borrower of all debt to the lender. For example, if the lender sells the property for less than the value of the debt, s/he will still pursue the borrower for the shortfall. [6]
Lenders' resistance to the calling-up procedure
Lenders may be reluctant to use the calling-up procedure, for a variety of reasons. Firstly, the lender must believe that the debtor is genuine in his/her stated commitment to leave, and that this is not just a delaying tactic. Secondly, calling-up notices allow defaulters possible technical defences to a repossession action. [7]
Making a homeless application after voluntary surrender
If the borrower is likely to apply to the local authority as homeless after surrendering their home, it should be emphasised to the authority that the borrower could not possibly have met the payments required by the lender and that the mortgage to rent scheme was unable to assist, in order to avoid the issue of intentional homelessness. For more information, please see the section on homelessness.
Last updated: 29 December 2014