Mortgages and letting property

A person who buys a house in Scotland and borrows money from a bank or building society (the lender) will invariably have the loan secured on the house by means of a standard security (usually known as a mortgage). [1] A standard security allows a lender to take possession of the house and sell it if the borrower does not keep up with their mortgage payments, or doesn't comply with any other condition of their mortgage.

The standard security agreement between the borrower and the lender contains a number of standard conditions. [2] If these are breached by the borrower then the lender may have the right to repossess the property. For example, where the borrower rents the property out without the lender's consent, [3] or they have failed to keep up with mortgage payments. [4]

Providing the lender follows the correct procedure they will have the right to repossess the property from the borrower.

Typically, where a borrower has failed to keep up payments on the mortgage, the following procedure will take place:

• The lender will send warning letters to the borrower calling for payment of the arrears and warning that failure to pay the arrears, or make an arrangement to do so, may result in legal action to recover the property.

• The lender and borrower may then enter into negotiations to deal with the arrears.

• If these negotiations break down or the borrower does not co-operate, it is likely that the lender will take legal action to repossess the house.

If a lender wants to recover the property, they will apply to the sheriff court for recovery of possession. Before the lender can go to court they must follow certain pre-action requirements which applies to repossession actions. If the lender completes the pre-action requirements and following the correct court procedure the court will grant a repossession order if it is deemed reasonable in the circumstances to do so. [5] At this stage it's likely that the lender will also apply for an ejection order. This gives sheriff officers (who are court officials who help enforce judgments) the power to physically remove the borrower from property should they not leave the property voluntarily.

For more information see the section on mortgage arrears and court action.

Once the lender obtains decree, the normal procedure is that sheriff officers write to the borrower advising that they have decree for possession and ejection and that eviction will take place on a specified date. The sheriff officers may also visit the property to make sure that the borrower is aware of the decree.

It is very often only when the sheriff officers visit the property that they become aware that tenants are living there. If this is the case the lender must inform the occupiers that enforcement action is being taken in relation to the property they are occupying. The notice should also advise that the lender may have to take additional legal action to remove them from the property. [6]

For more information, see the section on mortgage arrears and court action.

A court order obtained by the lender giving them possession of the property from the borrower does not constitute a possession order in respect of any assured tenant who may be living there. [7] If a lender wishes to eject assured tenants from the property they will have to apply to the Housing and Property Chamber for an eviction order specifically ending their possession of the property in a separate action.  

If the lender is successful in taking repossession action against the landlord the lender may be entitled to raise an action with the Housing and Property Chamber to end any private residential tenancy. [8]

The documents indicating that court action is being pursued are normally served on the borrower by sending them to the property subject to the standard security, either by recorded delivery or by sheriff officers. Therefore, if tenants are living in the property they may be unaware that the action has been raised since the summons and other documents will all be in the name of the landlord.

At this stage, tenants may be advised by the sheriff officers that they are 'illegal tenants' and that they have only a matter of days to leave the property. Any such advice given is probably incorrect and the tenants may have substantial rights depending on their status.

See the page on the status of tenants for more information.