In a Supreme Court case yesterday Royal Bank of Scotland v Wilson & others, judges ruled that all lenders must issue a calling up notice before repossession.
RBS tried to repossess the homes of brothers Francis and John Wilson without a calling-up notice after they built up debts of £50,000.
But the sheriff said Wilson did not understand the bank’s warning letters and thought they were just seeking the money from him and as such it was not a legal warning.
The Supreme Court upheld this decision saying a calling-up notice is required.
Standard practice in Scotland meant lenders did not use a default or calling-up notice and would simply raise repossession proceeding based upon the mortgage arrears.
But the ruling means that all live cases, estimated between 2,000 and 3,000, may have to be re-started.
Mike Dailly, principal solicitor of Govan Law Centre, says the move could send shock waves through the Scottish system.
He says: “It could mean thousands of cases might have been raised incompetently, with defenders entitled to seek dismissal with expenses in principle.”
Rob Aberdein, partner of lending services at Aberdein Considine, says the change could lead to massive delays in an already stretched Scottish court system.
He says: “Our view is that all repossession cases in Scotland will be suspended. This decision will have serious implications for lenders lending in Scotland.
“It puts the cases back to square one and will mean more expenses and a massive amount of time spent on cases by lenders.”
Aberdein says cases could be delayed by up to six months.
Eleanor Hamilton, principal solicitor at Shelter Scotland, says it is a highly significant judgement.
She says: “It seems to imply that, from now on, all lenders will be required to serve a calling up notice or default notice during the process of repossession – which is currently not always the case.
“While this ruling won’t affect past cases, it will definitely have a bearing on ongoing and future repossession cases.
“And, as there appears to be no distinction about the purpose of the loans that are called up, this will apply across the board in repossession cases.”