The Government recently announced that the new Pre-action Protocol for possession claims will provide new guidance for the judiciary to halt or adjourn court actions on repossessions, unless alternative actions that help the homeowner have been fully examined.  This article considers the changes the new protocol may make to those cases where creditors have obtained an Order for Sale.

What is it? 

The new guidance has been issued to Mortgage Lenders and is enshrined in the Pre-action Protocol ("the Protocol") which comes into force on 19 November 2008.

Does it apply to all possession cases?

The Protocol governs arrears on first and second charge residential mortgages, home purchase plans, Consumer Credit Act, regulated secured loans and unregulated residential mortgages.

There are nevertheless, important parallels to be drawn with Order for Sale possession cases.  The end result is that homes are being repossessed to satisfy an outstanding debt.  It is likely that Judges will therefore apply the spirit of the Protocol to Order for Sales cases.

On the whole, lenders are being encouraged to consider repossession as a last resort and will be expected to demonstrate that reasonable steps have been taken to explore other means of satisfying the arrears.

How is it likely to impact on Order for Sale Actions?

The Protocol aims to ensure that both parties act fairly and reasonably in resolving amy arrears.

It encourages the sharing of information and early settlement of disputes.  Parties will be expected to be able to explain what actions they have taken to comply with the Protocol.

Claimants should be able to demonstrate that alternatives to repossession have been considered and that they have acted fairly.  In return, Debtors will be expected to provide information that could assist with the early resolution of the matter.

What steps should we be taking?

Once theDebtor falls into arrears, the Debtor should be invited to contact you to:

• Discuss the cause of the arrears.
• Provide evidence of the Debtor's financial circumstances;and
• Propose suitable repayment options.

You should then consider the information to determine whether the causes of the arrears are temporary or long term and whether the Debtor is likely to pay the arrears in a reasonable time.

The pre-action claim letter should re-iterate the invitation to the Debtor to contact your legal representative to pay the debt or to shed light on the Debtor's financial circumstances.  Any settlement proposals should also be carefully considered as you might be asked to justify any refusals.

All information provided by the Debtor should be considered as part of the preliminary investigations.  If it is unlikely that the Debtor will be able to pay the arrears/discharge/the debt in a reasonable time, a Order for Sale can b pursued.  There i no guidance a this stage a to what will b deemed a reasonable time.

< >The Protocol does not change mortgage lenders' rights t effect a Power o Sale nor does i change the Court's powers t deal with Orders for Sale.  The Order for Sale i still a legally viable mechanism t recover debt, albeit that additional evidence may b required t prove that the action i fair and that n suitable alternatives exist.

< >It remains t be seen just how much o an impact the Protocol will have o Order for Sale cases.  However, b adopting the best practice of adhering t the spirit o the Protocol, you are maximising the chances o