New Supreme Court judgment changes rules on repossession

24 November 2010

The Supreme Court issued a judgment today in Royal Bank of Scotland v Wilson which changes the way many banks repossess properties in Scotland.

In doing so, The Supreme Court has thrown a spanner in the works of many ongoing conveyancing transactions in Scotland. The decision has also radically challenged the way many banks have been repossessing properties for decades.

Repossession is governed by an Act of Parliament from 1970. Lenders have therefore been using the same procedures to repossess properties for 40 years.

The Act provides three main ways for banks to enforce their mortgage deed to demand payment of arrears or the whole loan, with a view to repossessing a property if need be.

One method involves the bank serving a ‘calling-up notice', demanding repayment of the whole debt in full. Such a notice gives the debtor two months to pay, otherwise repossession proceedings can commence.

A second method involves a ‘default notice’, demanding that a specific default is addresseed by the debtor. That could be failing to have adequate buildings insurance or failing to maintain the property. Traditionally, most banks have also used this method to demand payment of arrears, if one or more instalmant has not been paid. If the default is not remedied, then again, reposession proceedings can commence. The attraction to the bank is that there is a shorter one month period for a 'default notice'.

A third method is for the bank just to raise an action in court, seeking to repossess immediately due to some default, without either a 'calling-up notice' or a 'default notice' having been served first. The bank could lodge a certificate in the court action saying how much was due, and it would be very difficult to challenge that figure.

Traditionally, these three methods of repossessing the property were thought of as being quite separate - if the bank chose just to raise a court action, for example, they would not also have to issue the debtor with a calling-up notice. The bank could decide how to proceed and see each of the the three methods as options it could choose from.

Following the release of today’s judgment, The Supreme Court has made it clear that, although the bank can still choose which method to use, the requirements of each are not to be read quite so separately as previously thought.

The 'default notice' can no longer be used for arrears or the debt itself - the Supreme Court decided a 'default notice' is for matters such as no insurance, not maintaining the property, etc.

What about the repossession action without any prior notice, with the bank's certificate saying how much is due? Now, there first has to be a formal demand before the court action, and the Supreme Court has basically said that should be a 'calling-up notice'. This is to give the debtor enough warning and give them time to repay before they possibly lose their home.

The change may sound like a rather technical legal point but the consequences of it could be huge.

People who have entered into the process of buying a repossessed property from banks are suddenly finding that under this new interpretation of the law, the bank might no longer have the right to sell it to them.

Many solicitors have told their clients that all cases like this must be ‘frozen’ until the consequences of the case can be more fully understood.

What if a property was repossessed under the law as it previously stood? Will banks have to go through the process all over again?

Many attempts at repossession may be open to challenge, especially if you have recently been served with a 'default notice' or a repossesion court action in Scotland. It will become clear in the coming months how the profession will deal with this.

If you have a property that a bank is trying to repossess and you wish to look into challenging the process, then please contact our Gus Macaulay who can discuss the matter with you.

If you would like advice on purchasing a repossessed property, contact our Brian Inkster.

You can contact Gus or Brian on 0141 229 0880, or send an e-mail to Gus or Brian.

If you would like to know more about this case, you may wish to read the full judgment. However, don't delay getting in touch with us for advice, as time could be of the essence in making a challenge.

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