Hansard

I thank the committee for giving me this opportunity to give evidence on my member's bill. I have circulated a briefing paper that highlights the main aspects of the bill. The explanatory notes to the bill are also a good guide to the aims of the bill.

When I was a councillor on Cumbernauld and Kilsyth District Council and housing convener for North Lanarkshire Council, many people came to my surgeries with mortgage problems. I have long held the view that many of those people and their families could have been spared the indignity of repossession had the courts been able to take all their circumstances into account. Last August, the Scottish Association of Law Centres proposed Scottish legislation that would allow the courts to consider all the debtor's circumstances. That provided me with the impetus to introduce the Mortgage Rights (Scotland) Bill. I am committed to the changes that the bill would make and I am committed to the principle of helping people to remain in their own homes. We could help hundreds of people every year.

As some members will know, the current legislation does not allow sheriffs to use their discretion to grant a decree against a borrower who, for whatever reason, has fallen into mortgage arrears. English courts have had the power to exercise discretion for many years and can help people whose circumstances have changed. In England, people can pay back their arrears over a sensible period. That allows people to stay in their homes.

Figures from England show that, in about 60 per cent of mortgage cases, the debtors persuade the courts to suspend the order in favour of the creditor; of that 60 per cent, about 75 per cent manage to clear their arrears. In real terms, about 45 per cent of mortgage defaulters in England manage to stay in their own homes, having been given the time to get back on their feet. In Scotland, about 2,000 homes are repossessed every year. If we translate the English figures to Scotland, we are suggesting that 900 families could stay in their homes.

Those figures are based on the 1998 survey. There have been some changes in the latest figures issued by the Scottish Executive, which are contained in the briefing paper. In 1998, 900 families that had been made homeless through mortgage default sought local authority housing. They were considered to be in priority need for housing by the local authority.

Although the English approach is interesting, we cannot simply adopt their legislation. There are clear differences between Scots and English property law. There is no point simply tying a tartan ribbon around the English legislation. We need legislation that addresses the specific circumstances in Scotland.

Although no explicit power to suspend repossession orders currently exists in Scotland, courts have the discretion to use their general common law powers to stop proceedings—that is known as a sist of process. The courts can also postpone the implementation of a decree—that is known as a suspension of extract. However, in practice, repossession orders are rarely, if ever, suspended for the purposes of protecting debtors. The key need is to provide an explicit statutory power linked to criteria on which the court can exercise its discretion. As I said, if the courts could exercise discretion, many families caught up in mortgage default could pay off their arrears and stay in their homes.

I will give the legislative background to the existing powers. Part II of the Conveyancing and Feudal Reform (Scotland) Act 1970 created the standard security known to most of us as a mortgage. That was the only means of securing debt over land and buildings. The 1970 act sets out 12 standard conditions that the parties to a mortgage are required to adhere to, either as set out in the act or as varied by agreement between the parties involved.

The first seven of those conditions concern the maintenance of the value of the property and place obligations on the borrower, which the lender can carry out if the debtor fails to do so. The remaining conditions deal with the lender's right to enforce security—for example, to pursue payment of arrears from the borrower and to allow the lender to recover, from the borrower, any expenses incurred in exercising those rights. When the borrower defaults on mortgage repayments, or otherwise fails to carry out obligations under the standard security, the lender can take action to—among other things—sell or enter into possession of the property.

The 1970 act provides three distinct processes that lenders can use when they seek to enforce their rights. The explanatory notes to the bill contain clear guidance and illustrations of how that is effected. I will not go into great detail, because I am aware of the lack of time, but I will outline the three processes.

First, a calling-up notice is issued by the creditor, requiring the debtor to repay the whole sum borrowed and any interest within two months. Secondly, a notice of default is issued by the creditor, requiring the debtor to remedy the default within one month. The notice of default expires five years from the date of notice. Thirdly, under section 24 of the 1970 act, the creditor can apply to the court for a warrant to obtain the right to exercise any of the remedies available to the creditor when the debtor is in default.

In addition to those three processes, section 5 of the Heritable Securities (Scotland) Act 1894 provides that, when a debtor is in arrears, the creditor can apply to the court to eject the debtor from the property. I will not go into further detail, as those processes are outlined in the explanatory notes.

I hope that the Mortgage Rights (Scotland) Bill will become:

"An act of the Scottish Parliament to provide for the suspension in certain circumstances of enforcement rights of a creditor in a standard security over property used for residential purposes and the continuation of proceedings relating to those rights; to make provision for notifying tenants and other occupiers of enforcement action by a creditor in a standard security; and for connected purposes."

That is what is stated in the bill. I will put it into plain English—Robert Brown is familiar with the legal speak, but most of us are not. I want my bill to allow the courts to consider the personal and financial circumstances of the borrower when deciding whether to grant the order asked for by the lender and to provide greater protection and information for the tenants of those in default.

As I said, I believe that, by allowing the courts to take all the debtor's circumstances into account, we can reduce homelessness and ensure that lenders receive payment in full on the money that they have loaned on the property.

The figures that I have quoted were given to the Executive by the local authorities and the courts. However, many people hand in their keys when they find themselves faced with court action, so the process does not get that far and those people are not included in the statistics, as the committee heard from Shelter Scotland last week.

People find themselves in court and do not get the opportunity to explain why they have defaulted on the mortgage. Under current Scots law, the issue is black and white. When the borrower goes to court, the sheriff is faced with a yes or no decision. He is not allowed to take everything into account.

Where a lender has taken action for repossession to sell or enter into possession of the property, the bill makes provision for the sheriff to take everything into account and to suspend the enforcement of the process if such action is appropriate in his view. To enable the tenant to keep their home, the court will be required to consider whether the applicant might be able to repay the debt or arrears or fulfil the obligations under the standard security within a reasonable time. It will allow for the enforcement process to be delayed to give the applicant and others staying in the property time to find alternative accommodation.

The bill contains a section that deals with the application to suspend enforcement of standard security. That is outlined in the brief and, to allow time for discussion, I will not go into it in great detail. It deals with what usually happens when a creditor has issued a calling-up notice or a notice of default or has made an application under section 24 of the 1970 act. The proposed section allows the debtor or the proprietor, where the proprietor is not the debtor, to apply to the court for suspension of the creditor's rights of enforcement. That is the important point. A debtor or proprietor can apply only where the property subject to the security is that person's sole or main residence. The section also allows for the debtor or proprietor's non-entitled spouse—for example, where the couple have separated—to apply to the court. Applications to the court must be made within the time limit specified—not later than one month after the expiry of the notice, which is specified in the default.

Section 2 deals with the disposal of the application. Where the court considers it reasonable in all the circumstances, it may suspend the creditor's rights to such extent, for such period and subject to such conditions as it thinks fit. That will give the applicant reasonable time to remedy the default, where, in the view of the court, the applicant is likely to be able to achieve that, or give the applicant and others staying at the property sufficient time to arrange alternative accommodation and avoid risking homelessness. Where the applicant clears the default while an order is in force, the standard security has effect as if the default had not occurred.

A calling-up notice requires the debtor to repay the whole loan rather than simply make good any arrears or rectify any other forms of default. In this case the default is the failure to comply with the notice. As such, if the court decided to give the applicant time to remedy the default, the applicant would be required to repay the whole sum borrowed and any interest, which for most debtors would be extremely difficult. By opting to serve a calling-up notice rather than a notice of default, a creditor would effectively deprive the debtor of the opportunity of obtaining an order allowing time to clear the arrears or otherwise rectify any default. The effect of section 2(4) of my bill is that the court may suspend enforcement of the calling-up notice until the notice expires under the 1970 act. By attaching conditions to the order, the court can thus allow the applicant to repay the arrears only, rather than the whole debt as required under the calling-up notice.

Section 2 also allows the creditor or the applicant to apply to the court to change the terms of the order or revoke it, or further to continue proceedings to a future date.

Section 3 of the bill, which gives effect to the schedule, deals with the notices to debtors, proprietors and occupiers. It amends the forms used in connection with a calling-up notice or notice of default and provides for notices to be given to the debtor and proprietor where a creditor applies to the court for a warrant under section 24 of the 1970 act or commences proceedings under section 5 of the 1894 act. The section also provides for a notice to be sent in each case to the occupier of the property. The notices, which will be sent by recorded delivery, inform each party of their rights.

The bill would allow the courts to consider the personal financial circumstances of the borrower. Over the past year, I have thought carefully about the provisions that would enable those aims to fit into the legislation. I consulted interested organisations before drafting the bill and asked them for comments on the draft bill. I believe the bill will help in the fight against homelessness. It will not solve all the problems, but it will certainly avoid many of the cases of homelessness that result from mortgage default.

At present, a debtor who gets into difficulties should contact the creditor as soon as possible and try to come to some arrangement. That works in the majority of cases and many lenders work with borrowers to reschedule their loans. Most of the main high street lenders are signed up to a code of guidance, but we know that other lenders are not so understanding and have not signed up to the code.

Some borrowers, for whatever reason, do not face up to their difficulties or seek help. If they do not get help, by the time the case gets to court it is too late. Creditors sometimes feel that they will get a response from debtors only by taking them to court and, by that time, the house is lost. Some people do not take on board the implications of borrowing money, and some people who take out second mortgages against their house run the risk of losing their home. We understand the difficult financial choices that people—especially people with children—sometimes have to make when they fall on hard times. Debtors need a chance to draw a line under their problems and come to an arrangement with their creditors. I believe that my bill would give debtors that chance.

Tenants can also be unwitting victims of repossessions. Usually, the tenant and the creditor do not know of each other's existence. The first the tenant knows about a repossession order can be when the sheriff officers arrive at the door. My bill allows for the tenants to be given notice of default notices so that they can take legal advice. That will give them time to find alternative accommodation.

I hope that committee members will agree that my bill helps to address the difficulties faced by many families and that they will support its attempts to tackle homelessness.