BORROWERS NEED TO BE PREPARED

The Court of Appeal has recently suggested that borrowers sometimes may be faced with the same obligation as lenders to ensure their evidence is up to date and complete if they want to rely on the Administration of Justice Act.

There can be little doubt about the importance of Cheltenham & Gloucester Building Society v Norgan [1996] 1 All ER 449 to both lenders and borrowers. It is the main legal reference point for considering whether a borrower who is struggling with mortgage repayments is legally entitled to remain in the property and is considered on a daily basis by District Judges. More than 20 years before the decision, Parliament had indicated its desire to provide greater protection for defaulting borrowers. Section 8 of the Administration of Justice Act 1973 (“AJA”) clarified that “any sums due” referred to in the earlier 1970 AJA meant arrears only but left open how long the borrower had to pay them – with the courts then developing a practice of allowing only two to four years. By ruling that the whole of the remaining mortgage term was the starting point for considering what was “within a reasonable period” (referred to in the AJA) the Court of Appeal (which acknowledged the influence of industry guidance from the Council of Mortgage Lenders) strengthened the position of borrowers and from then on suspended possession orders became common place.

The legislation however does make clear that a suspension is not an automatic entitlement but will only be awarded if “it appears to the court” that the arrears can be repaid over the whole lifetime of the mortgage.

What evidence does a borrower have to provide to the court? In Cheltenham & Gloucester Building Society v Norgan itself the court indicated the greater protection could herald more scrutiny of the borrowers’ financial position – “this approach will be liable to demand a more detailed analysis of present figures and future projections than it may have been customary for courts to undertake until now. There is likely to be a greater need to require of the mortgagors that they should furnish the court with a detailed “budget”. However a differently constituted Court of Appeal in Cheltenham & Gloucester Building Society v Grant [1994] 26 HLR 703 emphasised the importance of allowing District Judges latitude and warned against the introduction of strict legal rules of evidence – Nourse LJ stating “it must be possible for [judges] to act without evidence, especially, where, as here, the mortgagor was present in court and available to be questioned and no objection to the reception of informal material was made by the mortgagee”.

The subsequent introduction of the Mortgage Possession Protocol, the emergence of Treating Customers Fairly principles and the effective embodiment of “Norgan” into MCOB, usually means there is greater “dialogue” between lender and borrower regarding the latter’s financial position and ability to service any repayment schedule. Further, established case law places lenders at risk if they refuse, prior to a court hearing, a suspension along the “Norgan” principles.

It should be noted however that previous poor payment history has always been a material consideration and evidence which should be considered by the court when considering a request for a suspension under the AJA. The Court of Appeal recently in Jameer v Paratus AMC emphasised the need for the borrowers to provide clear and consistent evidence of their financial position when seeking to rely on the AJA. Against a background of previous breaches of suspension terms, the Court of Appeal ruled that incomplete information from the mortgagor regarding both her employment status and omissions from a “revised” income and expenditure form meant the court could not consider her evidence as being credible and accordingly could not exercise its discretion in her favour.

Having complete and correct information/paperwork is of course mandatory for lenders when attending possession hearings. Even allowing for the facts of this particular recent case, it would appear a similar (if slightly diluted) obligation will be placed on borrowers.

 For further information please contact Max Houghton (Head of Secured Recoveries)or Jeremy Bouchier (Solicitor & Chief Legal Officer).


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