Pre-action requirements

Before they can repossess a borrower’s property, lenders must show that they have kept the borrower informed of their liabilities under the mortgage agreement and have considered reasonable alternatives to repossession. These are known as the ‘pre-action requirements’ and were introduced by the Home Owner and Debtor Protection (Scotland) Act 2010 (‘the 2010 Act’). In complying with these pre-action requirements lenders must also have regard to guidance issued by the Scottish Government. [1] 

Lenders must have provided the borrower with clear information about:

• The terms of the loan.

• The amount of money due under the loan agreement along with a statement which clearly shows the amount of arrears and any charges arising from late or early payment of the mortgage.

• The details of any other debt(s) owed to the lender. [2]

This information must be provided to the borrower in reasonable time after they have defaulted. [3] 

The meaning of 'default' in this context has been interpreted in different ways in the sheriff court. In one case the judge held that 'default' meant once a calling-up notice had been served and not complied with, [4] as opposed to the borrower not complying with any other of the standard conditions of the mortgage agreement. This means that it's premature to provide borrowers with this information before the borrower serves a calling-up notice. However, this is contrasted in another case where the judge held that 'default' had a wider meaning; it also covered the failure to make monthly payments due under a mortgage agreement. [5] Here the judge thought it unnecessary to wait until a calling-up notice had expired to provide the borrower with this information.

If this pre-action requirement is successfully challenged the case could fail, and the lender would need to re-raise proceedings against the borrower. Borrowers should be aware that challenging this pre-action requirement and delaying court action could add to their legal costs.

Lenders must make reasonable efforts to agree repayment plan with the borrower to pay off mortgage arrears and arrange the fulfilment of any other obligation under the mortgage agreement. [6] It is recommended that lenders contact borrowers by way of writing. However, contact is not limited to writing and lenders may contact borrowers by way of telephone or email where written contact receives no response. [7]

In doing this lenders must:

• Make reasonable attempts to contact the borrower to discuss their situation in relation to the mortgage agreement.

• Where a repayment plan or other proposal is suggested, communicate this to the borrower in clear terms.

• Give the borrower a reasonable time period within which to consider any proposals made by the lender.

• Where a decision has been reached in relation to a proposal, inform the borrower of this within a reasonable time.

• Consider the financial circumstances of the borrower (if known) when deciding whether a proposal is affordable. [8]

Where the borrower proposes a repayment plan and this rejected by the lender, lenders must inform the borrower in writing why any proposed repayment plan has been rejected. This must be carried out within ten working days of the lender informing the borrower that they will not accept their repayment offer. [9]

Where a repayment plan is agreed but is not adhered to, the lender can commence court action to repossess the borrower’s home. If this is the first time that the repayment agreement has been broken the lender must:

• Give the borrower notice in writing that they intend to apply to court for repossession explaining why they are doing so.

• Wait 15 working days after the borrower has received the notice before applying to court to repossess the borrower’s home.

• Give the borrower the chance to catch up with the outstanding mortgage repayments in this 15 day period. If the borrower catches up with the repayments the lender must not apply to court to repossess their home. [10]

If the borrower is taking steps which are likely to result in them paying off their arrears and any other debts, within a reasonable time frame, lenders must withhold from applying to court for repossession. [11] The borrower must provide the lender with evidence of the steps they have taken to pay off the arrears. This can include:

• A claim on payment protection insurance held in relation to the mortgage. The borrower must provide the lender with proof that there is a good chance of payment from the policy.

• An application to a government mortgage rescue scheme which has a reasonable chance of being accepted. The lender has the right to refuse this if it is not permitted under the terms of the mortgage agreement.

• Proof that the borrower is trying to sell their home at a reasonable price with guidance from a professional, for example a solicitor. Where this is this case the borrower must accept any reasonable offer for their home within a reasonable time. [12]

If the borrower’s claim under payment protection insurance is successful but the amount due under the mortgage agreement is not covered by the policy, or the borrower’s claim under mortgage rescue scheme has not been decided in a reasonable time or is refused, the lender may apply to court for repossession. [13] This is also the case where the borrower decides to turn down a reasonable offer to buy their property, or their property has not sold within a reasonable time. Their refusal to tell the lender the details of the agent acting for them in relation to the sale of the property, or to allow their agent to communicate with the borrower will also mean lenders will be able to apply for repossession. [14]

Lenders must provide borrowers with information on how to find sources of advice and assistance in relation to managing their debts. [15] This includes providing the borrower with an information sheet in relation to their mortgage where the security is regulated, directing the borrower to Citizens Advice or a similar advice provider and the housing department of the borrower’s local authority. [16]

Lenders must prove to the court that they have completed all of the pre-action requirements by filling in Form 11C or the 'Certificate of completion of pre-action requirements'. If the lender has complied with these they can apply to court to repossess the borrower’s home.