The end of possessions is nigh

Philip Tebbatt says that it\'s time to check out your arrears policy under MCOB 13 or risk falling foul of the Civil Justice Council pre-action protocol which is now at the consultation stage

Are we talking ourselves into a recession? I am beginning to think that we are. You cannot pick up a newspaper without reading dire predictions of meltdown in some sector of the economy or other.

I can’t help thinking that journalists have a lot to answer for. They appear to have decided that the public don’t find ‘credit crunch’ stories interesting or accessible enough and so they have decided to put a spin on the whole issue which causes every Englishman (and a good few Englishwomen) to quake behind the drawbridges of their castles.

I see story after story predicting doom and gloom for the housing market, no one being able to get (let alone afford) a mortgage or that we will return to the days of huge volumes of possessions. We shall see.

However, I am willing to wager that there is one document in your suite of regulatory policies and procedures that has hardly been looked at in recent years.

I’m talking about your arrears policy under MCOB 13. And this might be a time to have a look before, if the papers are to be believed, you are faced with a flood (a good tabloid word) of arrears cases.

After all, the papers will, no doubt, hit out at the Financial Service Authority if a flood hits and we all know what the FSA does if that happens – it hits out at you.

There is, however, another reason for looking at this issue. The Civil Justice Council has just issued a consultation paper seeking views on a pre-action protocol which sets out the steps a court will expect to see carried out even before a case gets to court (with potential penalties if they have not been), for mortgage arrears cases.

This comes hard of the heels of Citizens Advice calling for just such a protocol in its December 2007 report Set Up to Fail.

That document is worth reading after you have ingested more salt than the latest missive from the Department of Health suggests is appropriate (or is salt OK this week?), as it details some extreme cases of poor arrears practice. You may want to consider if your arrears teams would react in the same way. Someone clearly did.

The draft protocol expressly states that it adopts the guidance in MCOB 13. All the more reason for checking that your policy does. What is significant is that it details certain circumstances where proceedings should not be started – where an application has been made to the Department for Work and Pensionsfor mortgage interest payment or where the borrowers have shown that they have taken reasonable steps to market the property, for example.

The latter one troubles me. How many times have we seen possession hearings adjourned or warrants suspended by district judges when the borrowers claim to have achieved a sale which then miraculously evaporates? If this protocol is adopted we are told that in those circumstances proceedings should not even be started.

The protocol also provides that proceedings should not normally be issued where there is a bona fide complaint to the Ombudsman (you can do it but only if you serve notice explaining why). That, to me, particularly knowing how long the Ombudsman service takes to deal with cases, is a charter for delay and is bound to be exploited by borrowers.

My guess is that even if you do issue proceedings, having served notice on a borrower explaining why, a district judge is likely to stay proceedings pending the outcome of any complaint (they won’t want to adjudicate upon what is or is not a bona fide complaint) if this element of the draft protocol remains in force.

The court would also not expect proceedings to be issued before alternative dispute resolution methods have been explored and may require you to provide evidence of the steps you have taken.

It seems to me that all this protocol does is provide more opportunity for unscrupulous or opportunist borrowers to exploit the system and delay matters.

The fact is that most genuine borrowers who encounter difficulties do get the support that they need, despite what the doom mongers may suggest, but sometimes possession is unavoidable. Let’s not make any impending problems worse. If ever there was a consultation paper that I would urge you to respond to it, is this one.

Philip Tebbatt is principal of niche financial services law firm Slater Rhodes and can be contacted at philip.tebbatt@slater-rhodes.com