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October 2009

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Update Oct 09
Item New Mortgage Pre-Action Protocol Form N123 now in use
Details The CPR 50th Update introduced with effect from 1st October 2009 a standard form checklist for use in all cases to which the Mortgage Arrears Pre-Action Protocol applies. The checklist is in Form N123 with guidance notes attached. Claimant lenders are required to present two copies of the Form when attending first hearings of claims issued after 1st October 2009. The Form contains eight questions and claimant lenders must be able to explain to the court the actions they have taken. The Form also contains a statement of truth and care should be taken to ensure that this is signed by someone who is able to confirm the truth of the facts stated. In practice, this is probably best dealt with by an officer of the claimant lender, rather than a solicitor agent on the day.
Form N123
Item The Home Repossession (Protection) Bill is withdrawn
Details This Private Members Bill, which was intended to close a perceived loophole in the law following the High Court decision in Horsham Properties Group Ltd v Clark [2008] EWHC 2327 (Ch) by amending s 101 Law of Property Act 1925 so as to make it a condition precedent to the exercise of the power of sale that a lender first obtains the court’s permission, has now been dropped by its sponsor, Andrew Dismore MP.
Item Financial Services Authority Mortgage Market Review
Details On 19th October 2009 the Financial Services Authority set out proposals for major reforms in the UK mortgage market. The proposals were announced in an FSA Press Release and summarised in the October 09 FSA Newsletter. The Mortgage Market Review Discussion Paper can be viewed online. The document, which runs to 118 pages, invites responses by 30th January 2010. The FSA proposes to publish a Feedback Statement in March 2010. The proposals reflect a changed approach to a more intrusive and interventionist style of regulation – to constrain irresponsible high-risk lending and borrowing but without restricting flexibility or access for consumers. The Review’s key features are as follows: • Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay • Banning ‘self-certification’ mortgages and requiring verification of borrowers’ income • Banning the sale of products which contain certain ‘toxic combinations’ of characteristics that put borrowers at risk • Banning arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears • Requiring all mortgage advisers to be personally accountable to the FSA • Calling for the FSA’s scope to cover buy-to-let and all lending secured on a home Interestingly, the Review assesses changing consumer behaviour and the notion of ‘mis-buying’ – that consumers may not be rational market participants – to the extent that the FSA doubts whether greater transparency or financial capability will provide an answer. Hence an emerging part of the FSA’s policy development has been an approach which aims to protect consumers from themselves. The result is that the FSA will inevitably seek to ban certain products and impose much tighter affordability tests. Emphasis on consumer responsibility is taken up by the Council of Mortgage Lenders in the CML Response. In respect of arrears and repossessions, the FSA recognises that consumer outcomes when facing repossession are greatly enhanced where people have access to advice (suggesting that advice from a solicitor as part of a housing possession court duty scheme leads to an immediate repossession being avoided in 85% of cases). The FSA therefore proposes working with partners in government to assess whether access to advise can be improved at key stages before repossession occurs. Referring to the Mortgage Conduct of Business Sourcebook, the FSA acknowledges that the rules have not sufficiently protected consumers and states that there is a need to take immediate action to strengthen the rules for which they propose to consult in January 2010. In particular, the FSA criticises lenders for not exercising forbearance but moving quickly to repossession. They say they propose to consult on converting what is currently guidance on forbearance into binding rules. Therefore they say that instead of suggesting a range of tools that could be used to help borrowers in arrears, they will prescribe a non-exhaustive list of tools that firms must employ to help consumers in arrears, which will include the various government schemes put in place to help borrowers. As to arrears charges, the FSA notes that some of the charging practices they have seen are unfair and unacceptable and that they expect arrears charges to be a fair reflection of the additional administration costs faced by lenders, not simply a way to increase profits or offset costs from other parts of their business. The FSA states that it does not expect to see costs, such as advertising, funding costs, or provisions to cover regulatory fines, for example, recovered from arrears charges. They say that in view of the obvious unfairness of some of the charges imposed by a number of lenders, they propose to take immediate action and consult in January 2010 on banning the following charges: monthly arrears administration charges (where a consumer is adhering to a repayment arrangement); and early redemption charges (on arrears fees and charges). This is part of the FSA’s wider review into the level of charges generally – possibly with a view to establishing a baseline figure for arrears charges to prevent out-of-line fees being charged.
Item HM LAND REGISTRY PRACTICE GUIDE 30: APPROVAL OF MORTGAGE DOCUMENTATION
Details Land Registry has produced a new Practice Guide dealing with new arrangements effective on 1st October 2009 for lenders to obtain approval of the forms of charges. Once approved the charge is given a unique “MD” reference number. To qualify for approval, the charge must contain or provide for: • A date • The names and addresses of the borrowers • The name and address of the lender, including its company registration number, if any • A description of the property being mortgaged, including its title number • A valid charging clause • A valid execution clause with provisions for attestation Application for approval is by Form ACD with two copies of the charge. There is no fee. A copy of Form ACD, with Form CH1 (legal charge of a registered estate) is attached to the Practice Guide, together with advisory policy information
Item DCLG ANNOUNCEMENT: COUNCILS URGED TO OFFER GREATER HELP FOR HOMEOWNERS
Details On 29th September 2009 Housing Minister John Healey announced the introduction of new provisions in CPR 55 with effect from 1st October 2009 which were designed to ensure that local councils are informed about repossession action and are able to step in and offer advice and help for those most in need. The amendments to CPR 55.10(2) require that within 5 days of receiving notification of the hearing date from the court, claimant lenders must now send notice of the proceedings, not only to the ‘tenant or occupier’ but also the housing department of the local authority within which the property is located. Mr Healey says that Councils are already playing an active role in providing impartial advice and support, but in addition he has written to all Council leaders saying that when Councils hear from lenders taking repossession action against local people, this should prompt them to offer practical advice or support for residents struggling to keep their homes. This could include directing them to free debt and legal advice, helping them apply for benefits such as Support for Mortgage Interest, or, for the most vulnerable households, assessing them for the Mortgage Rescue Scheme. The announcement also recommends that anyone concerned about meeting mortgage payments should go to the Government’s new mortgage information website: www.mortgagehelp.direct.gov.uk
Case name Serious Organised Crime Agency v Pelekanos
Neutral citation [2009] EWHC 2307 (QB)
Legal points Mortgage fraud – Civil Recovery Orders – false statements in mortgage application forms
Facts Police intelligence suggested that P was involved in drug trafficking and money laundering. The Serious Organised Crime Agency applied for civil recovery orders under Part 5 of the Proceeds of Crime Act 2002 in respect of a number of properties owned by P and purchased with the benefit of mortgages. It was contended that the mortgage applications contended false information about P’s income and the sources of his income which it was alleged constituted unlawful conduct and was itself a sufficient basis on which a recovery order could be made.
Held In a number of cases it has been held that where a mortgage is obtained through a false statement being dishonestly made on a mortgage application form then the property purchased with the assistance of the mortgage can be said to have been obtained thereby and to be recoverable property under POCA. In those cases all the funds provided for the purchase were found to be tainted funds and therefore no distinction fell to be drawn between purchase funds provided by way of the mortgage fraud and other purchase funds and a 100% interest in the property was held to be recoverable – see Assets Recovery Agency v Olupitan [2008] EWCA Civ 104; Assets Recovery Agency v Jackson [2007] EWHC 2553 (QB) and Serious Organised Crime Agency v Olden [2009] EWHC 610 (QB). When property is purchased with tainted and untainted funds one determines the portions of the value of the property derived therefrom at the time of the purchase. So, if half of the price comes from tainted money then half of the value of the property is to be regarded as derived therefrom. The object is to deprive the respondent of the portion of the value of the property which is attributable to his criminality. Any subsequent increase in the value of that half portion may be said to be attributable to the criminality, but no more. Conversely, it is not fair to deprive a respondent of the portion of the value of the property which derived from untainted funds. If so, it would be equally unfair to deprive him of the benefit of a subsequent increase in value of that half portion. As to whether the mortgage has been obtained “by or in return for” the fraud, it is necessary to establish that the fraud “materially influenced” the decision to lend, but it is not necessary to call evidence directly from the mortgage provider in order to prove the requisite causal link. On the facts, with one exception (there being no misrepresentation in respect of P’s ‘anticipated’ income on a self certification mortgage application form) SOCA had made out its case on mortgage fraud. The income figures and the sources of income amounted to dishonest false statements (and the fact that the forms had been filled out by an intermediary made no difference). Significantly, in his conclusion, the judge said this: "[The case] illustrates the breadth of application of the civil recovery legislation. As the law stands, any person, however otherwise law abiding, may be the subject of a civil recovery order if he makes a deliberately false statement in a mortgage application form. It is important that this be more widely known, and it is desirable that mortgage providers spell out this possible consequence of a misstatement in their application forms."
Comment This case contains useful guidance on the procedure for obtaining a civil recovery order under the Proceeds of Crime Act 2002 in relation to funds dishonestly obtained by mortgage fraud. The significant point is the judge’s conclusion that a false statement made in a mortgage application form is treated as unlawful conduct and will expose the applicant to a civil recovery order. The judge warned that mortgage providers should make this clear in their application forms. It follows that solicitors acting for mortgage applicants should also make this clear to their client.
Case name Link Lending Ltd v Hussein
Neutral citation (unrep) Newcastle Upon Tyne County Court (24th September 2009)
Legal points Overriding interest – right to set aside transfer – actual occupation - nature of occupation required
Facts H ‘procured’ a transfer from B who, at the time, was suffering from a severe mental illness. There had been some sort of agreement that part of the transfer money would be paid to a third party, with the remainder being paid to B in instalments whilst she continued to live in the property. B was subsequently admitted to a psychiatric hospital and then resided in a care home. H used the property as security for a loan from L. H defaulted in repayments and L commenced possession proceedings. B was joined as a Second Defendant and brought a Part 20 Claim against H seeking to set aside the transfer (and claiming an overriding interest). She claimed that the transfer was voidable by reason of her lack of capacity and that an equity arose in her favour which had priority over L’s charge under Para 2, Sched 3, Land Registration Act 2002. B claimed that she was in actual occupation notwithstanding the fact that she was being cared for at a home at the time of the charge; B’s furniture remained in the property; she frequently visited it; and she intended to return; and no-one else lived there.
Held The transfer was voidable. There were various aspects of the transfer which were highly suspicious. B’s incapacity would have been apparent to H, and it was unlikely that H ever paid any money to B. An equity therefore arose in B’s favour. The term ‘actual occupation’ had to be interpreted in terms of ordinary plain English. It required some degree of physical presence (Williams & Glyn’s Bank Ltd v Boland [1981] AC 487 applied). Whether a person was in actual occupation was a question of fact, depending on all the circumstances of the case. B was in actual occupation at the relevant time. She genuinely wanted to return. Her furniture was there and arrangements had been made to pay bills to maintain the property. Moreover, B continued to visit the property because she considered it to be her home. Although she was not physically present at the property at the time of the charge, her occupation was manifested and accompanied by a continuing intention to occupy (Thompson v Foy [2009] EWHC 1076 (Ch) applied).
Comment This is another example of a fraudulent transfer leading to a charge with the innocent ‘victim’ having to assert some proprietary right – in this case her equity to set aside the transfer – coupled with her actual occupation, to give her an overriding interest and therefore take priority over the charge. The significant finding was that the claimant could claim she was in actual occupation despite the fact that she was living elsewhere. There is some flexibility in the law in this respect. See the useful summary in Megarry & Wade, Law of Real Property, 7th Edition, para 7-096 etc. However, it must be remembered that for the purposes of Para 2(c), Sched 3, LRA 2002, the occupation must be obvious on a reasonably careful inspection of the land. In the present case, there must have been sufficient signs of occupation to put the lender on notice, and it follows that for the purposes of Para 2(b), Sched 3, LRA 2002, the lender did not make inquiry of B. It is understood that there may be an application for permission to appeal [A transcript is now available]