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The UK Supreme Court upheld the appeal of two sets of Scottish homeowners in the case of Royal Bank of Scotland plc v. Wilson and others [2010] UKSC 50, where a lender's certificate of default did not amount to a 'requisition' for the purposes of section 5 of the Heritable Securities (Scotland) Act 1894, and where the court held that in the circumstances of the case, a 'calling-up notice' should have been served.
The standard practice of most lenders in Scotland in reposession proceedings has been to raise a writ founding upon a 'default' in terms of standard condition 9(1)(b) (of sch 3 of the 1970 Act) and seek recovery in terms of section 24 of the Conveyancing and Fedual Reform (Scotland) Act 1970. In essence, lenders would not bother with a default or calling-up notice and would simply raise repossession proceeding based upon the mortgage arrears (lodging a 'certificate of default' setting out the amount of arrears).
And that was that for many years in Scotland - defenders could use the Mortgage Rights Act (Scotland) 2001 and now the Home Owners & Debtor Protection (Scotland) Act 2010 to obtain a chance to pay, re-mortgage or restructure, sell, or apply to the Mortgage to Rent Scheme. But no-one challenged the orthodoxy of the lender's right to use standard condition 9(1)(b) for a repossession based upon mortgage arrears; until now.
The UK Supreme Court's ruling makes it clear that standard condition 9(1)(b) cannot be used for a failure to comply with mortgage payments, and instead a calling-up notice is necessary in an arrears case. At para 74 Lord Hope says "As standard condition 9(1)(b) refers to a failure to comply with any other requirement arising out of the security, this section must be taken to refer to defaults other than in respect of the debt secured by the standard security. Content for its application is to be found in the requirements that are set out in standard condition 1 (maintenance and repair), standard condition 2 (completion of buildings), standard condition 3 (observance of conditions in title) and standard condition 5 (insurance) and any other similar conditions that may have been included by way of variation to maintain the value of the security subjects".
GLC's Principal Solicitor said: "The fact the UK Supreme Court has stated that standard condition 9(1)(b) cannot be used for a failure to pay ones mortgage, and that in such cases a calling-up notice and standard condition 9(1)(a) should be used instead, will send shock waves to lenders and their solicitors in Scotland. More than that it could mean thousands of cases might have been raised incompetently, with defenders entitled to seek dismissal with expenses in principle. GLC would recommend that all homeowners in Scotland currently subject to repossession proceedings seek advice from a law centre solicitor or local firm of solicitors in light of this decision".
Updated: 30/11/10
Thousands face extra bills as court ruling hits property sales
There are also warnings of the impact of the judgment on the cash-strapped courts service, with thousands of cases scrapped and having to come back into the system. Last night, the Law Society of Scotland called on solicitors to put the brakes on all purchases of repossessed homes until it can be proven it is compliant with last week’s “earthquake” judgment
Bruce Ritchie, director of professional practice at the Law Society of Scotland, said: “The society’s conveyancing and civil justice committee will be looking at this in detail but our preliminary view on current transactions that have not yet settled is that buyers’ solicitors should be firm about declining to settle the transaction until selling creditors can produce evidence of having followed correct procedure.”
Mike Dailly, of the Govan Law Centre, said he would pursue legal action against the lenders for putting the bill for dealing with the judgment on to his clients. He said: “The question that no-one has asked is ‘who’s going to pay for all this?’ I have no doubt UK banks will do what they always do and pass these costs onto consumers by adding them to their mortgage – which they can do if the costs are reasonable. “We could be looking at up to £40 million or more. “It’s not reasonable to expect vulnerable Scots facing repossession to pay banks and their lawyers twice for what is essentially their solicitors’ responsibility and failure.” "
