Comment: Sword of Damocles over mortgages lifted

FIVE years ago mortgage repossessions in Scotland were thrown into meltdown. The UK Supreme Court had issued its judgment in the case of RBS plc v Wilson, and 40 years of perceived legal wisdom evaporated into mist.

Thousands of mortgage repossession cases are raised each year in Scotland by lenders. Picture: PA
Thousands of mortgage repossession cases are raised each year in Scotland by lenders. Picture: PA

The court said you couldn’t repossess someone’s home unless the lender had served a calling-up notice before legal action. Thousands of cases had to be dismissed across Scotland because many lenders hadn’t done this.

Interestingly, most lenders billed their customers twice at this time – once for the incompetent case dropped from court, and once again for the new case they had to raise. Govan Law Centre secured a decision from the Financial Ombudsman Service requiring a lender to reduce their bill by half on the basis it wasn’t the customers’ fault they had to be taken to court twice.

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Sadly, unless borrowers challenge these fees they won’t get their money back, so there are still thousands of Scots who have been overcharged by up to £2,000.

The Wilson case had other unforeseen consequences. When the Scottish Government introduced its pre-action requirements at the end of 2010, many lenders didn’t realise they had to give information about mortgage arrears one month after the calling-up notice was sent. The courts agreed with us that all these cases had to be dismissed. The banks weren’t happy, and once again they were billing their customers for all of their mistakes.

Fast forward to now, and there appears to be another potentially very significant consequence flowing from the Wilson case. First, some important context.

Thousands of mortgage repossession cases are raised each year in Scotland by lenders. They include sub-prime lenders who secure a loan on your home – known as “second charge mortgages”. If you default on any type of mortgage the lender will eventually want a court order allowing them to evict you and sell your house.

However, it’s very common for banks and other lenders to sit on the court order, which lasts for 20 years, and use it like a Sword of Damocles.

But there’s a problem. The law says calling-up notices expire five years from the date they were sent. So can lenders threaten to repossess someone’s home based upon a court order obtained on or before 2010? We didn’t think so. So we recalled one of these court orders for a homeowner who was threatened with mortgage repossession.

At first the lender thought it could fix the case by amending it – but the Wilson case says you need a calling-up notice before taking someone to court. We argued this and the lender agreed to dismiss the proceedings, with no expenses.

So what does this mean? The Civil Justice Statistics in Scotland reveal that over 10,000 mortgage repossession cases were raised in 2008/09. Year on year thousands of cases are taken to court and in the majority of cases court orders are granted. The numbers have been declining so in 2013/14 there were only 4,715 new repossession cases started.

Lenders in Scotland are sitting on thousands of repossession court orders older than five years. However, borrowers now have an avenue to challenge these repossession orders. They should use it.

• Mike Dailly is principal solicitor at the Govan Law Centre