Landlords defaulting on mortgage payments
Not for the first time I encountered a problem last week that has become all too familiar to me down the years.
How to advise and advocate for a tenant where their landlord is facing repossession proceedings for defaulting on the mortgage, specifically if the landlord didn’t tell them?
How best to protect the tenant?
Commonly this only comes to light because the lenders send notifications of court proceedings to the address marked “Mr Smith and any other occupiers”, which gives the tenant, as ‘any other occupiers’, the right to open the post and therefore be alerted to the situation.
A reasonable response that works in some cases but not all, with tenants often still not opening the post when the main addressee was the landlord.
This has been around for many years
I’ve been around this game enough to recall the dark days of the early 90s, when the mortgage interest rate was so high that people were getting repossessed by the bucket loads and often trying to dig themselves out of a hole by moving in with relatives whilst they rented out the property as first-time landlords.
Repossessions were inevitable in the 90’s
They got repossessed, the tenants didn’t have a clue and virtually every day the homelessness unit got at least one family evicted by bailiffs on a warrant without any prior notice.
It got so bad that bailiffs would regularly return to the court and advise the mortgage representative to apply again, naming the tenants. They didn’t have to of course but such was the widespread nature of the problem then.
Helping tenants become aware
As a result of all this, the Council for Mortgage Lenders issued guidance to mortgagees saying they should add the phrase “Any other occupiers” to court papers, which wasn’t common practice up until that time, so that any tenants ignorant of their landlord’s parlous financial state would at least get a heads up.
And that has been custom and practice ever since.
What can tenants do?
That issue aside what does the tenant do when there is no foreknowledge that possession proceedings are extant against their landlord?
Mortgage Rescue Scheme
In the more recent recession of 2008 onwards when the Mortgage Rescue Scheme was alive and kicking the government, still concerned that innocent tenants were being evicted because of their landlord’s failure to pay the mortgage, introduced a new legislation called the Mortgage Repossession (Protection of Tenants) Act 2010.
This allowed the courts to give 2 months grace on the repossession in order to find somewhere else to live.
Fine on paper but …
However, like all legislation, there are working difficulties in the drafting.
For a start:-
- this concession isn’t available if the mortgage is a buy to let one, nor is it applicable if it is a residential mortgage and the lender granted permission to the borrower to rent it out.
- The 2 months grace period only applies if the mortgage itself was a straightforward residential one and the borrower let without the knowledge or permission of the lender, which, to be fair is still a very, very high number of cases.
The problem for tenants and advisers starts with first being able to find out what the deal between the lender and the borrower actually is.
- You cant rely on the borrower in difficulty, to tell the truth, as the tenant might stop paying their rent.
- If you call the mortgage lender or their solicitor they won’t tell you or the tenant anything at all, because neither you nor they, are party to the contract or the proceedings.
So whilst you could approach the court for a 2 month grace period under the 2010 legislation unless you know what the set-up is, you have no idea in the world whether or not you will succeed or are wasting your money. If, for instance, it turns out to be a buy to let mortgage.
The landlord is fighting his own battle
The landlord, for their part, might well be locked in a battle with the lenders, trying to stave off repossession, through negotiations and payment plans aimed at either defeating the lender’s repossession action or softening it into a suspended possession order.
But all the while that this is going on the tenant doesn’t know what is happening and isn’t entitled to know because they are not a party to the proceedings.
The lender won’t tell them and anything the landlord tells them must be taken with a pinch of salt, given they are up against it themselves, with no guarantee of a successful outcome, despite how optimistic they may be.
I know this because I spent 5 years working the Mortgage Rescue Scheme and buying numerous adjournments and suspensions for the borrower and proceedings can be delayed for well over a year in some cases.
Its all a big gamble
During this time the tenant and anyone trying to help them is taking a gamble, trying to negotiate a settlement when they don’t even know what the bargaining chips are and the croupier won’t even talk to them.
The only way to move into an informed position is to get themselves named in the proceedings. But the problem with that is that they are then, potentially liable for some of the costs of the repossession, depending on what issues they may raise.
Legal Aid may be an option
If they are eligible for legal aid then at least they can do it with costs protection but if they aren’t then it’s a real shot in the dark.
And even knowledge of where the proceedings are at is not the same as knowing what deals are being struck to prevent repossession or what the chances of success are.
Data Protection issues
Whilst this situation is wholly unsatisfactory I also see that it would not be right to reveal the landlord’s personal finances and negotiations with a third party.
Having said that, is it right that a tenant might lose their home when they’ve been paying the rent but the landlord hasn’t been paying the mortgage?
Suing the landlord is not a cost-effective option
If the tenant sues the landlord for the loss of their home they are unlikely to get any money back, given the financial problems of the landlord and the fact that they may have lost their single asset.
A possible solution?
Maybe the solution would be to extend the 2 months grace to all tenants in such circumstances, not just unauthorised ones.
The law as it stands seems to have a built-in safety valve, aimed at protecting lenders as much as tenants and give faster repossession to the mortgagees to allow them to sell on more quickly, without having to bother with tenants who may not have known what problems the landlord had.
Giving 2 months heads up to all tenants, with a clause making that period rent free would allow them to cobble together enough money to relocate.
Which would be better than nothing.