Braintree, United Kingdom (PressExposure) December 08, 2008 -- A recent case where a lender by-passed the courts and repossessed a property after just two months of missed mortgage payments - resulting in the owners being sued for trespass - goes to show just how low some firms will stoop when it comes to getting their 'pound of flesh', suggests Payment Protection Insurance lobbyist Sara-Ann Burgess from provider Burgesses.
Earlier this year, the lender - GMAC RFC - appointed receivers and auctioned the property of a buy-to-let borrower who was in arrears. Purchasers, Horsham Property Group, then sued the previous owner for trespassing.
Although the lender failed to follow the correct protocol and didn't give the owner notice of repossession, it was ruled in the High Court that GMAC RFC was legally correct to sell the property. Mr Justice Briggs confirmed the property owners could be evicted under legislation from 1925 which states loan providers can sell the home of people in arrears without a court order.
GMAC used provisions under Section 101 of the Law of Property Act 1925, giving them the power to sell the property mortgage payments are due on or appoint a receiver. The previous owners took the case to the High Court stating their Human Rights had been contravened, however this plea was thrown out.
"This has huge implications for consumers," says Sara-Ann. "On the one hand we have lenders pledging to give customers up to six-months' breathing space before repossession proceedings begin and on the other, lenders are invoking 83 year-old laws to speed up the process.
"Whilst lenders might profess to follow the Financial Services Authority's guidelines on repossession and explore all avenues before making a claim, what's to stop them taking advantage of this antiquated legislation and seizing the property earlier on - it's happened once so why not again?"
The FSA recently warned banks and building societies they face fines and other sanctions if they do not treat struggling customers fairly, but with a report from the Life Trust Foundation stating 700,000 homeowners expect to miss a mortgage payment next year, Sara-Ann is fearful lenders will become impatient and more will use the 1925 loophole to recoup their losses.
"Lenders are cynics and realise any moratoriums only put off the inevitable. Whilst there are ethical companies out there, we know from the PPI mis-selling scandal that many banks and building societies do not worry about the financial or emotional hardship they cause their customers."
Sean Horton from mortgage broker, Enhanced Wealth, shares Sara-Ann's concerns: "It's all very well the Government saying it's taking action to protect vulnerable families from repossession and adopting new court protocols, but if legislation from 1925 allows these protocols to be ignored, it makes a mockery of the whole system."
Despite protestations from politicians and the Council of Mortgage Lenders, little has been done to close the loophole. Sara-Ann concludes: "The ruling from Mr Justice Briggs allows homes to be sold after just two missed payments leaving customers at their lenders mercy - I sincerely hope not many will adopt these Scrooge-like repossession tactics."