Guide to Home Repossession – Ins & Outs
What a lender needs to do before it can repossess a property, what happens when a house gets repossessed and what to do if your home is at risk from repossession
Repossessions are an unfortunate consequence of any recession. It can be a terrifying and lonely ordeal and there is often nothing you can do to avoid it but there are some things you can do to limit the damage. The purpose of this article is to explain the process so that, if you are at risk from repossession, you know what to expect, and also to provide some damage limitation tips.
What is Repossession?
Repossession is where a creditor who has a debt secured against your home takes possession of it and evicts you so that it can sell it to recover the debt.
Who Can Repossess My Property?
If you have a mortgage on your home then your lender has a statutory right to take repossession if you fail to maintain payments. 
If you take any additional borrowing out on your property (a secured loan or second charge) then that lender may also be able to take repossession.
In addition, any creditor can apply to the court for a charging order in respect of any unpaid debt. If successful this will be registered against your property so that when you come to sell it you will have to pay the debt from the sale proceeds. Once a creditor has a charging order it can apply for an order for sale. If the court grants this they can then take repossession of your home and sell it.
Finally, if you become bankrupt and you own a property in your sole name, legal ownership of the property will automatically pass to the official receiver, or once appointed the trustee in bankruptcy, who may then sell the property for the benefit of your creditors.
What Process Does a Lender Have to Follow in Respect of Home Repossession?
A mortgage lender cannot take repossession of your home without giving you a fair opportunity to settle your arrears. First, the legal right to take repossession is only enforceable when you are at least two months’ in arrears. What happens next depends on whether you are in occupation of the property. If it is empty (i.e. it is abandoned or it is a buy to let property that is currently vacant – it is not enough that you are just away on holiday) the lender can take peaceable possession. This means they simply go to the property and change the locks. They are then free to sell.
If you are still in occupation however the lender has to obtain a court order, called an Order for Possession. Before a court will grant such an order they will need to see evidence that a process called the “Pre-Action Protocol” has been followed. The protocol requires the lender to try and help you clear the arrears and carrying on paying your mortgage. They have to send you a number of letters warning you of the threat of repossession and have to try and work out a payment plan with you so that you can settle the arrears over a period of time.
If you currently have a capital and interest mortgage, the lender should offer to swap this to an interest only mortgage, which will reduce your monthly payments. Of course this means that you won’t be paying off any of the capital so there will still be a debt outstanding at the end of the term, but this option can be extremely useful when you are in temporary difficulties.
If the lender attempts to obtain an order for possession without complying with the pre-action protocol the judge is likely to turn down the application and tell the lender to go back and follow the process. Dependent on what you do and say during the process this pre-action period can go on for quite some time before repossession of your home takes place, for example if you are able to make periodic payments so as to indicate a willingness to deal with the matter or if you can come up with a feasible plan or there is a prospect that you will have additional income in the near future.
It is a good idea to get some professional advice at this time and while you may not be able to afford a solicitor, you could contact your local Citizen’s Advice Bureau for help.
Order for Possession
Once the pre-action protocol has been completed and if you have not settled the arrears or come to any arrangement with the lender they will apply for an order for possession.
They must do this as it is illegal to evict anyone for a property which they are occupying as their home without a court order, even if they had no right to enter the property in the first place.
The lender will make an application and will produce evidence of the existence of the mortgage and the arrears and will have to demonstrate that it has complied with the pre-action protocol. There will then be a hearing which will be attended by the lender’s solicitor (or an agent) and which you will be called to attend. You are not obliged to attend but if you do not then, unless the lender’s application is fundamentally flawed, it likely the judge will make an immediate order for possession. If you do attend you may ask the judge to consider adjourning the hearing or, if an order must be made, making a suspended order. You will need to satisfy the judge that you have the ability to stick to some kind of repayment arrangement and you may need to make a lump sum payment on the day. If you think the lender has not acted properly or you dispute any of its evidence you can raise this at the hearing.
A suspended order for possession is one which is only enforceable in the event that you fail to keep up to an agreed payment plan. It dispenses with the need to have a further hearing if you default.
If an order for possession is granted the lender will then need to enforce it. This does not have to be done immediately.
Eviction Following Repossession
Once an order for possession has been obtained the lender will usually proceed to evict you. To do this it must first obtain a warrant for eviction, from the court. You will be entitled to 30 days notice of eviction from the date the warrant is granted. Once the notice period is up the County Court bailiffs (or occasionally the High Court bailiffs) will attend the property with a locksmith who will be instructed by the lender. If you have not already vacated you will be removed and the locksmith will change the locks.
What Happens after Repossession
The Asset Manager
Following repossession of your home the lender will appoint an asset manager. One of the first things the asset manager will do is to arrange for a contractor to disconnect the services and “drain down” any central heating system. The property will be insured on a block policy which will cover all of the lender’s repossession properties and this will be a condition of the policy.
They will then proceed to assess what works are needed to the property and arrange for them to be carried out. All of the costs, including the asset manager’s fees, will be added to the mortgage debt as repossession costs. They will arrange for the property to cleaned and for any items of furniture etc (other than white goods usually) to be removed. Once all this is done they will instruct an estate agent to market the property and will act as agent for the lender in terms of accepting or declining offers.
Access to Your Belongings after Repossession
Although it is discretionary, the lender will usually allow you time following repossession of your home to collect your possessions. If you do intend to return for your possessions you should advise the asset manager immediately to ensure it does not dispose of them.
Selling the Property
The lender is obliged to you to achieve the best price it can reasonably achieve for your property. It will have the property valued and should not sell for less than market value unless it does not prove possible to achieve this. The property will usually be offered on the open market before it is sent to auction. You will not generally be involved in the sale process.
After the sale of the repossesed property
What Happens When the Lender Makes a Loss on a Repossession Sale?
If the sale price is insufficient to pay the mortgage debt in full the lender is still entitled to recover the balance from you and it pursue you directly or it may sell the debt. If there are any subsequent debts secured on the property the creditors’ interests will be removed from the property by a process known as “overreaching”. This allows your lender to sell without being responsible for these debts; however the creditors are still entitled to pursue you.
What Happens if There is Money Left Over After a Repossession Sale?
If the sale price achieved is enough to settle the mortgage debt in full and there is money left over the lender will instruct its solicitors to distribute this surplus to whoever is entitled to receive it. If there are other debts secured on the property then it will be passed to the next creditor in line, usually the one whose interest was registered on the earliest date. If there are no other debts then the proceeds will be paid to you. You will need to provide the solicitors with identification documents and you’ll need to have a bank account in your own name. You’ll normally need to sign a receipt.
Where the proceeds are paid to a creditor the whole surplus proceeds will be paid to them regardless of what they are actually owed. If, after taking what is owed to them, there is still money left over it will be their responsibility to pass it on to the next in line.
If the person or organisation which appears to be entitled to the surplus proceeds cannot be traced, or if it is unclear who is next in line, the solicitors may choose to pay the money into the Court Funds Office, where it will be held until someone makes a valid claim on it. That claim must be made to the County Court and will be heard by a judge.
Where the Lender Who Repossesses Does Not Have First Charge
Sometimes the property will be repossessed by a second or subsequent charge holder. When this happens, if that charge holder chooses to sell, it must settle the debts owed to any superior charge holder in full from the sale proceeds. If, upon assessing the market value of the property, it becomes clear the sale proceeds will not be sufficient for this, it may hand the property over to a superior charge holder to sell. Even though it will not receive any money from the sale, this will at least enable it to close down the mortgage account and pursue other avenues of recovery, such as insurance or selling the debt.
What You Can Do to Help Yourself
It is often tempting when facing repossession to try and frustrate a future sale in order to get one over on the lender, or to drag out the repossession process or to simply be indifferent. You have to keep in mind however that the property is still your asset from the sale of which you could receive some equity and, even if there is no prospect of you receiving anything, the better the sale price the less debt you will have afterwards.
Voluntary Possession
If you find yourself in a position where you are unable to pay your mortgage, and there is no realistic prospect that you will be able to resume payments in the foreseeable future, you can contact your lender and volunteer possession of your property. If they accept this will avoid legal fees for repossession as well as month after month of unpaid interest and late payment fees, not to mention the stress of trying to hold on against impossible odds. It may be a wrench to give your property up but if it is likely to happen anyway you could end up better off in the long run.
Give the Property Up in the Best State Possible
You should imagine you are selling the property yourself. Though of course you probably won’t be able to afford to spend much money on it, there are a few things you can do. First, avoid doing any damage when removing any fixtures and fittings. Any damage caused will either be repaired at your expense or will reduce the potential sale price. Sometimes people will take things like radiators and boilers. Whilst it may be possible to sell this second hand it is unlikely the price obtained will come close to matching the resulting lost value from the property.
If there are any minor repairs that you’re able to carry out safely then do so. The asset manager will employ contractors to carry out any repairs they deem necessary after repossession and naturally this will be much more expensive than doing it yourself.
If you are able to paint the property this may make it more attractive to purchasers and help achieve a quicker sale. If you do this, use neutral colours. You shouldn’t overspend on decorating; just make the property look clean and fresh.
Your Belongings
Remove as much as possible, if there is rubbish then dispose of it. If you don’t then the asset manager will, which will add to the repossession costs.
Deeds and Documents
You may hold documentation to do with the property which may be required during the sale. If you have anything (copy deeds, planning permissions, guarantees etc) then these should be given to the asset manager with an instruction to pass them to the lender’s solicitors or else given to the selling agent once the property is marketed for sale, with the same instruction. Lack of documentation often slows sales of repossession properties down, and every day the sale is delayed equals a day’s extra interest on the debt. Also, copies may need to be obtained in which case a fee will usually be incurred.
Make Yourself Known to the Selling Agent
You don’t need to be involved in the sale process and will not routinely be contacted, however there may be situations where you have knowledge about the property which may be useful to the purchaser and may help a sale to proceed more quickly. Once you become aware that the property is up for sale (check for the sale board going up), it might be useful to provide the selling agents with your telephone number in case anything does arise. You shouldn’t attempt to involve yourself in the sale however unless you are contacted.
Photo by Sam Fox
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