Protection for borrowers, hoops for lenders

New restrictions for repossession applications

The Home Owner and Debtor Protection (Scotland) Act 2010 came into effect on 30 September, introducing extra restrictions on lenders making repossession applications for residential properties in Scotland.

The Act requires lenders to try and reach agreement with borrowers who are struggling make debt repayments. Anyone advising either party to a mortgage should be aware of these new provisions.

The new law provides that lenders cannot be granted an eviction order unless they have complied with “pre-action requirements” specified in the Act, requiring the lender to:

  • give borrowers information about advice on debt management
  • take all reasonable steps to avoid repossession
  • use reasonable endeavours to reach agreement with a borrower for clearing arrears
  • not make a repossession application if a borrower is taking steps likely to result in arrears being cleared in a reasonable time

While those words likely and reasonable are going to be the cause of some debate and interpretation, even where property is empty, a lender cannot sell under its statutory powers unless either the borrower (and spouse / civil partner) formally gives up their occupancy rights, or the lender gets an eviction order from the court.

Court applications must also be sent to ‘entitled persons’, including a spouse, civil partner, even someone living with the borrower, who also have a right to make representations to the court.

Institutional and private lenders must apply these changes, especially pre-action requirements, to ensure any enforcement action is valid.

Shaun Mackintosh
Associate