An orchestra of instruments

Last year in the Journal (December 2009, 16), I set out a summary of the provisions of a bill designed to change the landscape for the recovery of secured residential properties by heritable creditors. That bill has now been passed and the Home Owner and Debtor Protection (Scotland) Act 2010 duly came into force on 30 September this year.

The main terms of the Act are very similar to those in the bill, introducing concepts such as "pre-action requirements", "entitled residents", a mandatory hearing on every case (achieved by a switch to summary application procedure), opening up lay representation on such matters, and provisions for automatic recall of decree. With some fairly minor exceptions, these are matters which were largely covered last year.

What has moved on significantly is the fleshing out of the Act by secondary legislation, with (at the time of writing) six statutory instruments and an Act of Sederunt having also come into force alongside the Act.

Initial overtures

The most important of these is undoubtedly the Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010 and its associated statutory guidance, issued by the Scottish Government.

The secondary legislation requires that the creditor must provide the debtor with information about the terms of the security, including a description of the nature and level of any charges that may be incurred by virtue of the contract to which the security relates, if the default is not remedied. The creditor must also provide information about the amount due to the creditor under the security, including any arrears and any charges in respect of late payment. The information must be broken down so as to show the total amount of the arrears and the total outstanding amount due including any charges already incurred.

It is also incumbent on the creditor to take reasonable steps to agree proposals with the debtor. It is provided that the creditor must make reasonable attempts to contact the debtor to discuss the default, and must provide the debtor with details of any proposals made by the creditor, set out in such a way as to allow the debtor to consider the proposal. There is, of course, considerable scope for disagreement as to what will amount to reasonable attempts in individual cases.

Where a proposal is made by the debtor, the creditor must notify the debtor within a reasonable time of any decision taken by the creditor to accept or reject a proposal made by the debtor. The creditor must also consider the affordability of any proposal from the debtor taking into account, where known, the debtor's personal and financial circumstances.

Slow crescendo

Where the debtor fails to comply with any condition of an agreement reached with the creditor and the creditor decides to issue proceedings, then - provided the debtor has not previously failed to comply with any condition of the agreement - the creditor must give the debtor notice in writing of the decision to issue proceedings. The creditor must not issue proceedings before the expiry of 15 working days, beginning with the date on which the debtor is deemed to receive the notice.

The 2010 Order also identifies specific examples of instances which are likely to result in payment within a reasonable time. As a consequence, having regard to the wording of s 24A(4) of the 1970 Act, where these defined circumstances occur an application to court must not be made by the creditor at all.

The particular provisions set out include, first, the submission of a valid claim to an insurer under a mortgage payment protection policy currently held by the debtor; secondly, the submission of a valid application by the debtor to a mortgage support scheme run by the Scottish Government or the United Kingdom Government; and thirdly, where the debtor is actively marketing the property for sale at an appropriate price, in accordance with professional advice.

Practitioners also need to be aware of the Act of Sederunt (Sheriff Court Rules) (Enforcement of Securities over Heritable Property) 2010. This introduces a new form 11C which must be lodged with the initial writ and is already universally known as "the checklist". This allows creditors' agents to confirm - and the court to check - by means of tick boxes and explanatory text that the pre-action requirements have been completed with by their clients before proceedings are raised. This piece of secondary legislation also provides the mechanisms for applications to enter the process by entitled residents, and for recall of decree, as well as stipulating new requirements for the content of initial writs and answers.

An extended cast

The Lay Representation in Proceedings Relating to Residential Property (Scotland) Order 2010 and its associated guidance, makes provision for the way in which advice organisations and charitable bodies can become accredited, so as to become "approved lay representatives". Such persons may represent the borrower or an entitled resident in court proceedings of this nature. Only certain prescribed bodies may approve (or withdraw approval from) individuals.

The expectations on lay representatives are high, with the documentation providing that they must have knowledge and understanding of "Scottish legislation and the common law", in so far as they relate to "housing and repossession", and of court procedures and rules, particularly those relating to summary applications in the sheriff court.

Representatives should also have a "good knowledge" of regulations promoted by the Financial Services Authority, consumer credit legislation, the Heritable Securities (Scotland) Act 1894, the Conveyancing and Feudal Reform (Scotland) Act 1970, and the Act and associated secondary legislation now under discussion. At all times, it remains incumbent on the approved representative to satisfy the court that they are fit and appropriate to appear.

Also worthy of note is the Home Owner and Debtor Protection (Scotland) Act (Consequential Provisions) Order 2010, which amends the content of calling-up notices, notices of default and the raft of explanatory forms which must be served on defenders and others. Whatever method the creditor uses to seek to enforce its rights, the debtor will not be able to complain that their own rights have not been explained to them! The new forms go into considerable detail in explaining the various options available and, of course, the date and time of the court hearing will be identified to all known interested parties at the outset.

It seems certain that the 2010 Act will have a much more significant effect than its predecessor, the Mortgage Rights (Scotland) Act 2001; just how significant remains to be seen.

Mark Higgins is author of The Enforcement of Heritable Securities, published by W Green (2010).