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Submission to the Local Government and Communities Committee

Stage 1 submission on the
Home Owner and Debtor Protection (Scotland) Bill

Summary
The Bill as presently drafted is not fit for purpose. In our experience if the Bill
were passed as drafted it would cause significant detriment to consumers in
Scotland. There is no reason why some simple amendments could not be
made to the Mortgage Rights (Scotland) Act 2001 (MRA) to achieve the key
recommendations of the Repossessions Sub-Group.

Who we are
Govan Law Centre is an independent, community controlled, law centre
based in Glasgow, Scottish charity number SCO 30193. We were one of the
law centres who campaigned for the Mortgage Rights (Scotland) Bill in 1999.
We have 22 paid staff, which includes 11 solicitors and 3 case workers.

We undertake a large volume of free defended mortgage repossession
casework in Scotland. We provide a dedicated defended mortgage
repossession service in the South West and East End of Glasgow, while our
Govanhill Law Centre provides a free legal services in the South East of the
City.

We also operate a dedicated prevention of mortgage repossession service for
East Renfrewshire Council, East Dunbartonshire Council, and South
Lanarkshire Council. We will shortly launch a similar service on a pan-
Ayrshire basis.

For a number of years our Principal Solicitor has trained Scottish money
advisors in the prevention of mortgage repossession on the national
Wiseradviser programme and for the UK National Debtline. He also lectures in
housing law at postgraduate level at the University of Glasgow and is editor of
the Housing Law Reports in Scotland.

Observations on Part 1
(1) Clause 1 of the Bill introduces a new affidavit procedure for ‘giving back
the keys’ to ones house, resulting in a voluntary assisted sale. We have
not come across any problems with the current practice and note that this
will result in an additional cost to homeowners. We believe the best
protection against voluntary assisted sales is to ensure debtors obtain

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Submission to the Local Government and Communities Committee

access to good quality, free legal and money advice, as in most cases
there will generally be a better solution available to them.

(2) Clauses 2 and 3 of the Bill are very poorly drafted, in particular:

(a) Clause 2(2)(1B) refers to ‘a standard security of that kind’. What kind?
Presumably this is meant to be of the kind in subsection (1A) but
parliamantary drafting should be precise and not left to the readers
presumption.

(b) In clause 2(5) at the new subsection (6) (at line 25) the court is required to
have regard to particular matters. This is one of the key recommendations
of the Repossessions Sub-Group, yet subsection (6) is so poorly drafted it
fails to deliver that recommendation. On a plain reading the court would
only have to consider the factors set out in the new subsection (7) ‘where
the debtor appears or is represented’. If the debtor does not appear –
as will happen in the vast majority of cases (because that is what has
happened for many years in the heritable court when tenants face
eviction) the court would not have to consider these factors. This flaw
alone would enable a horse and cart to be driven through the Bill.

(c) Furthermore clause 2(5) provides weaker protection that the current
Mortgage Rights (Scotland) Act 2001 (MRA). The MRA protection is not
restricted to a number of factors, ultimately it contains a ‘reasonableness’
test, which provides the court with a wide discretion. This Bill fails to
provide such overarching protection (which is tried and tested in Scotland)
and this omission is quite remarkable.

(d) One of the most profound failings in the Bill is in clause 2(5) at new
subsection (7) (at line 30) which requires the court to have regard to
whether the debtor can ‘fulfil within a reasonable time the obligations
under the standard security in respect of which the debtor is in default’.
On the face of it the change in wording may appear subtle, with the
introduction of the words ‘reasonable time’ for ‘reasonable period’, the
latter being used in s.2(2)(b) of the MRA. However, this is a fundamental
weakness because ‘reasonable period’ is used in the equivalent English
legislation1, and the Court of Appeal2 has interpreted this phrase to mean
that when it comes to paying off mortgage arrears the starting point is to
look to see whether the debtor can repay his or her mortgage and arrears
over the period of the mortgage itself – for example, 20 years. The use of
the word ‘time’, we suspect, will make the new Scottish test one akin to
that applied in time to pay directions and orders under the Debtors
(Scotland) Act 1987 – where in practice the courts expect arrears to be
cleared within a relatively short period e.g. 1 to 2 years. This weakness is
repeated in clause 3 and 4, and we cannot believe the Scottish
Government intended to provide less protection for Scottish homeowners
than under the existing MRA.
1
Administration of Justice Acts 1970, and 1973.
2
Cheltenham and Gloucester Building Society v. Norgan [1996] 1 All ER 449

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Submission to the Local Government and Communities Committee

(3) Clause 4 introduces the new ‘pre-action requirements’ which was another
key recommendation of the Repossessions Sub-Group. However, there
are a number of fundamental problems with the drafting here, and perhaps
more importantly, a critical flaw in the overall approach taken:

(a) With respect to the overall approach, we do not believe the detail of the
pre-action requirement should be on the face of the Bill, because this
should really be a detailed set of industry rules and expected practice.
What the Bill provides is clumsy, crude and often meaningless (see
paragraph (c) below). Ultimately, the Bill tries to re-invent the wheel but
comes up with a flat tyre. There is already a tried and tested set of pre-
action industry requirements contained with Chapter 13 of the Financial
Services Authority MCOB (Mortgage Code of Business sourcebook).3
The most obvious solution would have been to require the court to
consider whether the lender had reasonably followed Chapter 13 of
MCOB and if not, empower the court to dismiss the action, and award
expenses against the lender. This could have been achieved with a very
small amendment to the MRA.

(b) Clause 4’s new section 24A(4)(a) and (b) use the phrase ‘reasonable
time’. In our experience most clients facing mortgage repossession in
Scotland would be unable to clear their arrears or any other obligation
under the standard security within a ‘reasonable time’ (i.e. 1 to 2 years)
and therefore this ‘protection’ would be meaningless for many
homeowners in Scotland.

(c) New subsection 24A(5) already happens in practice, while 24A(6) is
meaningless – contact the local authority for what purpose? It doesn’t
say. The fact that s.24A(8) provides the Scottish Ministers with further
powers to add additional requirements is reminiscent of Part 1 the Debt
Arrangement and Attachment (Scotland) Act 2002 – which has seen
almost year on year amendment regulations to a scheme that was
conceptually weak and has never quite worked.

(4) Clause 6 is very badly drafted. It provides for a power to recall decree but
sets out no principle upon which decree would be recalled. Is the intention
to rely upon the common law rules for reponing notes? If so it’s primary
purpose is otiose given that reponing procedure currently works very well
for homeowners in practice in Scotland. If you want to make the
application procedure easier this rule does not achieve that. Significantly,
clause 6 introduces a 14 day timebar for recall applications following a
charge. This will harm a lot of homeowners in Scotland, as at present
there is no such timebar, and this clause will directly lead to unnecessary
homelessness in Scotland.

(5) Overall, we see no need for Part 1 as presently drafted. We believe it
would be very easy to add some very simple amendments to the MRA to
achieve all of the Repossession Sub-Group key recommendations, and

3
http://fsahandbook.info/FSA/html/handbook/MCOB

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Submission to the Local Government and Communities Committee

we are astonished that a Bill could be presently to the Scottish Parliament
with so many flaws, mistakes, poor drafting and regressive provisions, that
would ultimately provide less protection for homeowners that the existing
law.

Observations on Part 2
(6) We raise a fundamental point that while it is generally accepted there is a
need to provide urgent extra protection for homeowners in Scotland (which
this Bill fails to do) there is no obvious case for Part 2 of the Bill to be
expedited. We query why these provisions are being expedited and tacked
onto this Bill? The danger is to run the risk of causing very serious unintended
consequences as have been highlighted by others.4 We strongly believe
further research and proper consultation should be undertaken on Part 2 of
the Bill in the public interest.

Conclusion
We believe that the Bill as presently drafted is not fit for purpose. In our
experience if the Bill were passed as drafted it would cause significant
detriment to consumers in Scotland. There is no reason why some simple
amendments could not be made to the Mortgage Rights (Scotland) Act 2001
(MRA) to achieve the key recommendations of the Repossessions Sub-
Group.

Given the fundamental conceptual and drafting flaws in the Bill, we would
urge the Local Government and Communities Committee to recommend that
the Scottish Parliament reject this Bill at Stage 1. We would urge the Scottish
Government to give consideration to re-drafting a Bill to amend the MRA and
we would be happy to assist in how this could be achieved by some precise
and straight-forward minor amendments to the MRA.

Mike Dailly
Principal Solicitor
Govan Law Centre
Glasgow

10 November 2009

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We refer to the evidence given to the Local Government and Communities Committee by Insolvency
Practitioners Association and the Institute of Chartered Accountants of Scotland.

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