Types of orders in mortgage possession proceedings

An order for outright possession will usually be made if:

• the borrower does not go to the possession hearing

• there is no prospect of the arrears being cleared within a reasonable period

• a time order is not requested or is refused

• the borrower is unsuccessful in persuading the court to grant time to sell

Orders for outright possession will normally take effect 28 days after the hearing. If there is a good reason the court may postpone the date for possession for a longer period, for example where the borrower is ill or a new home is not yet available.

Once the date for possession has passed the lender can apply to the court for a warrant of possession to be executed by the court bailiffs. The court has the jurisdiction to postpone execution of the warrant for possession for a reasonable period.[1]

If the property is rented out and not occupied by the borrower then the tenant may be able to take action to delay eviction.

If the court is satisfied with the borrower's proposals for payment, a suspended possession order will usually be made. If the borrower is relying on the court's power to suspend possession in the Administration of Justice Acts, they will need to show that they can meet future mortgage payments and clear the arrears within a reasonable period.[2]

The court should consider the starting point for determining a reasonable period as the remaining term of the mortgage.[3]

By dividing the amount of the arrears by the months remaining on the term it is possible to arrive at the minimum offer the court is likely to accept. The court has discretion to refuse to suspend the order, so the borrower should offer a higher amount if it is affordable, but should allow sufficient flexibility in the budget to allow for emergency expenditure. Any offer should be supported by a statement of income and expenditure where possible.

Terms of the order

The order will state how the arrears and future instalments should be paid.

The order may state payments are to be made by:

• equal instalments

• steadily increasing instalments

• one or more lump sums

• a combination of the above over an agreed period

If the borrower cannot make payments immediately but this will change in the foreseeable future the court can make a ‘stepped order’.

In Zinda v Bank of Scotland the Court of Appeal commented that the power under the Administration of Justice Acts to impose terms on how the arrears are discharged applies equally to the future instalments for the remaining term of the loan.[4] This provides the court with a wider discretion to schedule payment terms than previously thought.

The suspended order is not discharged if the arrears are repaid and will remain enforceable if the arrears are repaid but further arrears accrue in the future. This is also the case if the lender later agrees to consolidate the borrower's arrears with the outstanding balance. The Court of Appeal in Zinda also held that although the effect of the capitalisation is to temporarily wipe off the arrears, if the borrower falls into further arrears, they will breach the order and the lender will be able to apply for a warrant of possession. The capitalisation of the arrears does not amount to a contractual variation. 

Calculating sums due

Where the mortgage term has come to an end the whole sum outstanding is due. There is no longer a right to pay by instalments and the court must make an order that requires payment of the balance of the mortgage in a reasonable period.[5] This may be a particular problem where the mortgage was interest only and there is an outstanding balance with no repayment vehicle.

Most mortgages have a clause that states that if the borrower misses a fixed number of payments then the whole of the sum outstanding with accumulated interest will become due. This is referred to as an accelerated payment clause. Section 8 of the Administration of Justice Act 1973 allows the court to treat as due only those sums that would have been payable had there been no such clause.

Certain sums are payable only in the case of default, such as:

• administration costs

• legal fees

• interest on arrears

It is arguable that these sums should not be considered by the courts when deciding whether the arrears can be paid off within a reasonable period. Although other costs can be added to a mortgage account, it could be argued that they should not be included in the terms of a possession order but paid off separately, perhaps after the other arrears have been dealt with. This may be a deciding factor as to whether or not the borrower can afford to make an acceptable proposal to the court.

There is no case law confirming whether this is the correct approach. In one case, it was found that section 8 did not prevent the lender from claiming a higher rate of interest after a default where the mortgage was a deferred rate mortgage and there was a clause in the agreement allowing this.[6]

Borrowers in difficulties can ask the court for a time order to reschedule a loan over a longer period. A time order allows the court to reschedule the payments due in order to give the borrower more time to make repayments. The time order provisions grant the court more flexibility in setting terms for repayment as it may interfere with the terms of the agreement.

Where a time order is made, the court should suspend any possession order that it also makes, so long as the terms of the time order are complied with.[7]

The court may adjourn the case as follows:

• a procedural adjournment if the lender has failed to provide all required information, or where the borrower needs time to obtain legal advice or to file a properly pleaded defence

• an adjournment under the Administration of Justice Acts for the borrower to pay the arrears over a reasonable period

The court can grant a procedural adjournment for however long it considers reasonable. The court may attach terms to the adjournment, for example, that the current instalments are paid. The court will send out a written notice giving the date and time of the next hearing.

The court may grant an adjournment to repay the arrears over a reasonable period if one or more of the following apply:

• the arrears are low

• the borrower has maintained an agreement to pay by instalments

• the lender has not taken court action as a last resort

This is sometimes referred to as a general adjournment and means the case is adjourned as long as the borrower keeps to the monthly payments specified by the court. A general adjournment has the advantage of requiring the lender to apply for another hearing if the payments are not made, but the borrower is likely to be liable for the additional costs of that hearing.

Where the lender has a contractual right to possession, for example because the arrears have reached an amount specified in the agreement, the court is unlikely to adjourn on terms. If this is the case the borrower should ask the court to suspend the possession order.

Time to sell

The court can also suspend the possession order for a reasonable period to allow the borrower time to sell the property.[8] The court must be satisfied that the proceeds of the sale will be sufficient to discharge the mortgage debt. If the borrower is in negative equity the court can only suspend the order if the borrower has other funds sufficient to meet the shortfall.[9]

The court has the power to extend any period of suspension.[10]

If the borrower or another specified party, such as a person with rights of occupation, can demonstrate they may have a defence to the possession claim, it will usually be appropriate to make an order giving case management directions.

Directions usually include allocation to a track, having regard to the general factors governing allocation [11] and those specific to possession cases:

• the level of arrears

• the importance of vacant possession to the claimant[12]

• the financial value of the property will not necessarily be the most important factor.[13]

Other directions may include:

• the service of a full defence, if not already served

• service of a reply

• disclosure and inspection of documents

• exchange of witness statements

• expert evidence, if required (such as expert valuation evidence)

• directions for trial including possible trial dates.

The court may grant a longer time to comply with directions, for example to the deadline for service of a defence because of difficulties obtaining public funding or the involvement of counsel. The borrower should tell the court if certain dates are not suitable.

If the claim should not have been issued, for example because the mortgage contract states a minimum level of arrears before a claim can be issued and this was not met, the borrower can ask the court to dismiss the claim. In the case of dismissal of a claim the borrower should request order that the lender pays their own costs and does not rely on an indemnity clause to add them to the mortgage debt.

Money judgment

In addition to a suspended possession order, the lender is also entitled to apply for a money judgment. In most cases, the money judgment will be suspended on the same terms as the order for possession[14] under the court's discretionary powers.[15]

It is common practice for a mortgage agreement to contain an indemnity clause stating that costs relating to possession action can be added to the outstanding loan. This applies regardless of whether the court order mentions an order for costs.

If the costs are considered unreasonable or improperly incurred,[16] the borrower may be able to have them reduced by applying separately to court for an order to that effect. In one case, the court disallowed the mortgage lender from recovering its costs by adding them to the security, as the possession action had been unreasonable.[17]

The borrower may request the court makes a summary assessment of costs at any particular stage in proceedings, for example to disallow the costs of a hearing where the lender needs an adjournment to comply with rules of procedure.[18]

Credit references

Money judgments and orders for costs made in possession proceedings are exempt from the register of judgments, orders and fines. This means the information is not available to credit reference agencies, potential landlords or creditors performing searches. However, if the lender takes steps to enforce the money judgment by making an application for a warrant of control, attachment of earnings or charging order, it will be registered.[19]

Mortgage lenders may share information with other lenders with the consent of the borrower.