06 Jul 2012

A Sensible Approach to Repossessing Abandoned Properties: Accord Mortgages Ltd v Edwards

A Sensible Approach to Repossessing Abandoned Properties: Accord Mortgages Ltd v Edwards

Rob Aberdein, Partner, examines a recent 'lender-friendly' Scottish decision in relation to the recovery of secured mortgage debt.

Rob Aberdein, Partner, examines a recent 'lender-friendly' Scottish decision in relation to the recovery of secured mortgage debt.

In times when it seems that decision after decision has gone against creditors, we are delighted to have successfully argued for fewer burdens to be imposed on creditors enforcing their securities.  By using what the Sheriff called a "well-presented and carefully structured submission" we persuaded the Court to approve our approach to the enforcement of securities over unoccupied properties. 

In Accord Mortgages Ltd v Edwards, a case at Haddington Sheriff Court, we were instructed to enforce the security over a property owned by a deceased debtor. The property lay empty as the estate of the deceased debtor was insolvent. The family of the deceased had no interest in the property; nor did the trustee in the bankrupt estate. 

For some time our view has been that, in cases where a residential property has been abandoned or lies empty for a period of time, it is unnecessary to raise a “standard” possession action.  Standard actions mean having to comply with the pre-action requirements, and persuading the Sheriff that it is reasonable to grant decree for possession. In empty home cases, the property is not “used to any extent for residential purposes”, the definition which triggers the application of the standard process. Thus, it has been our view that a simple declarator of the Court would suffice in such cases. 

To provide a little technical background, when a creditor wishes to enforce a standard security the current practice – following the Supreme Court’s decision in RBS v Wilson – is for them to serve a notice on the debtor calling-up the security (a “Calling-up Notice”) in the manner prescribed by section 19 of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the “1970 Act”). This allows the debtor two months to repay the full debt secured, failing which the creditor may proceed to exercise their remedies in the manner provided by the following provisions of the 1970 Act. 

The manner in which remedies may be exercised is found in section 20 of the 1970 Act. Section 20(1) & (2) describe what remedies the creditor may exercise in the event of the debtor’s failure to comply with the requirements of the Calling-up Notice, and are generally permissive, allowing the creditor to exercise any and all rights under the standard security as the creditor sees fit. However, the crucial provision is sub-section (2A):- 

“Where the standard security is over land or a real right in land used to any extent for residential purposes, the creditor is entitled to exercise the rights specified in standard condition 10(2) and (3) (and mentioned in subsections (1) and (2) above) only—

(a)   where the conditions in section 23A of this Act are satisfied [i.e. formal voluntary surrender of possession], or

(b)   with the warrant of the court, granted on an application under section 24 of this Act [the standard Summary Application procedure involving pre-action requirements, and reasonableness].”

Sub-section (2A) then is the gateway to the “standard” possession action. It clearly defines the circumstances in which a creditor may not immediately exercise their remedies in terms of sub-sections (1) & (2), and instead must make an application under section 24 of the 1970 Act. It applies where the standard security is over “land or a real right in land used to any extent for residential purposes”. 

Despite the commonly-held view that a creditor must raise a section 24 application to enforce a security over a “residential” property, i.e. a property which appears to be a house, which has at some recent time in the past been a house, and which will continue to be a house if sold by the creditor, clearly the provisions of the 1970 Act do not reflect this. The key question in our view is that of usage – the words used do not consider whether a building has been imbued with some inherent residential nature. Usage can change over time. Can it be said that an abandoned building is used to any extent for residential purposes (assuming there are no unauthorised occupiers residing there)? 

If sub-section (2A) does not apply, then the creditor is entitled to exercise any and all rights under the standard security without delay. As noted above, in this case the property had been left empty with no party claiming a right (or even a desire) to reside there. We considered that the property was not being used to any extent for residential purposes, and therefore that sub-section (2A) did not apply. However, given the practical necessity to secure a purchaser following possession, we raised an action for declarator of the Court that the Calling-up Notice had been properly served, the property was not used to any extent for residential purposes, and that the creditor had the right to take possession. 

Through a “well-presented and carefully structured submission”, we were successful in convincing the Sheriff that our approach was sound and correctly applied the law. The Sheriff said, “the determining factor in deciding how the creditor must exercise his remedies is the use to which the subjects of the standard security are being put”.  In other words, is the property currently being used as a residence? He went on to say, “the point in time at which the use is considered is that at which the creditor wishes to exercise his remedies”.  Again in other words, the creditor has to consider how the property is being used at the time when it seeks to enforce the security. 

Part of the Sheriff's reasoning was the fact that it is difficult, if not impossible, to comply with the pre-action requirements where the debtor has died, because it is impossible to serve paperwork on someone who has died.  This would make it impossible to take decree in a “standard” possession action. We would respectfully suggest that this reasoning could be equally applied in the situation where the debtor has simply disappeared, and cannot be contacted by the creditor.

This case is very helpful, as it endorses our approach to abandoned properties. The decision is authority for the suggestion that creditors need not always go the long way around where a property has been abandoned and may be at risk, or where the debtor has already left the property but has failed to formally surrender the property in terms of section 23A of the 1970 Act, and cannot now be traced.

If a property can be shown to be unoccupied, or abandoned, our approach can be adopted. The decision is not binding, but the reasoning is clear and accurate and would likely be followed by other Sheriffs should a similar action be raised elsewhere. It has the potential to reduce the timescales of at-risk cases, and reduce the uncertainty which is always involved in the “reasonableness” test.

Rob Aberdein, Partner


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