Pre-action Protocol update - August 09

Updated August 2009

Business as usual? …
…. was the introduction in our last pre-action protocol update which was circulated on 25 February. Whilst to date the protocol has had little impact on cases progressing through the litigation process (primarily due to lender compliance and the effective measures implemented to demonstrate this) on the 1 October a number of changes are to be introduced.

This update informs you of these changes and what you need to consider to deal with them.

Demonstrating compliance
Prior to the protocol's introduction in November 2008 much consideration was given to how lenders would be able to demonstrate compliance. The Ministry of Justice (MOJ) produced a draft checklist and intended to obligate all lenders to adopt it's use. This motion was backed by many lenders who considered it a positive that a simple and consistent approach be used in order to minimise irregularities with the way in which evidence is presented to the courts.

The Civil Justice Council's (CJC) Rules Committee declined to adopt the standard checklist on the grounds that "the protocol does not require lenders to pro-actively confirm compliance. They simply need to advise the court what they have done when they are at the hearing, if asked."

However, the position on this has changed and it is proposed that a standard template checklist be adopted. The CJC's Rules Committee has approved a final form checklist, and though this has yet to receive final sign off, the Council of Mortgage Lenders (CML) believe it will be introduced on 1 October 2009 along with further changes to the Civil Procedure Rules (CPR) which will require lenders to provide two copies of the standard form checklist at the court hearing.

A copy of the draft checklist accompanies this update, though we stress that this template may be subject to change.
No specific details on the intended changes to the CPR to accommodate the checklist are available at this time.

Incorporating Income Support for Mortgage Interest (ISMI) into the protocol
The MOJ is set to incorporate ISMI into the protocol. Currently, section 6.1 of the protocol only refers to a personal payment protection policy. However, this is set to change on the 1 October with specific reference to ISMI included in the protocol. The expectations imposed by the protocol remain the same; that a lender should consider postponing the start of a possession claim subject to a number of conditions.
The CML has provided a draft document which sets out the likely changes to clause 6.1, which accompanies this update.

Introducing The Mortgage Rescue Scheme (MRS) and Homeowner Mortgage Support Scheme (HMSS) into the protocol
The CML has reported the Government is applying considerable pressure on the CJC to incorporate both MRS and HMSS into the protocol. Following consultation with it's members the CML's stance is that it is not unreasonable to introduce MRS into the protocol, subject to some issues being considered. However, they strongly oppose the introduction of HMSS primarily on the basis that the scheme is a voluntary scheme from which some lenders, for perfectly legitimate business reasons, have opted out. If HMSS is incorporated into the protocol it could be perceived to force those lenders who have opted out to incorporate it into their pre-litigation arrears management processes.

The CML has written to the CJC and others voicing their concerns over the inclusion of HMSS in the protocol. There will no doubt be more to follow on this.

What you need to be thinking about
On the 1 October further changes to the Court Rules and the protocol will take effect. Below we summarise the issues all lenders will need to consider prior to their introduction on 1 October:

• Changes to the CPR

Lenders and / or their legal service providers will be obligated to provide notice of proceedings to tenants and the local authority where the property is located (currently notice is only sent to "the occupier"). Notice should be provided within 5 days of receipt of the possession hearing date. A search facility has been created to enable lenders to establish what local authority is to be notified. Whilst it was suggested this practice should be adopted by lenders prior to the changes taking affect on 1 October, we believe until such time that it is a legal requirement to do so it could be considered a breach of Data Protection. We therefore recommend that lenders only incorporate this into procedures from 1 October.

• The protocol checklist

Lenders will have to consider introducing this standard checklist into their existing processes, deciding at what point this is produced and by whom. At the moment it is unclear what the court's expectations are in respect of how close to the hearing this checklist is to be completed. Based upon the information we have our recommendation would be that lenders produce this checklist at the point where the witness statement is prepared (approximately 2-3 weeks prior to the hearing). Preparing this document at this point during the process will ensure an accurate and up to date account of the steps which have been taken to avoid repossession (including any post issue of possession proceedings) will be provided to the court. Lenders should also consider the benefits of exhibiting this checklist in the witness statement, or alternatively providing a copy of checklist to the borrower via a letter, even though it appears this will not be a formal requirement. By doing this we feel this will demonstrate a willingness to be open about compliance. Whilst the use of this checklist should supersede any other processes implemented by lenders we do not recommend lenders abolish current practices entirely and immediately. In our opinion the use of this standard checklist should compliment existing procedures; District Judges have become familiar with evidence being provided by lenders in different forms. We feel a complete shift away from this may result in problematic results.

For clients, once final details have been released setting out how the changes will take form we will be in touch with you to discuss strategies for dealing with it's production.

• ISMI

Lenders will need to factor this into their pre-litigation arrears management strategies to ensure they are able to adhere to the protocol and complete the standard template checklist.

• MRS

The vast majority of lenders have already incorporated MRS into their forbearance strategies. Consequently, we feel that the inclusion of this as a point of consideration in the protocol would have a minimal effect.

We have seen a short period of stability relating to the protocol. Inevitably, the continual focus being placed upon repossessions and the importance of keeping people in their homes has led to further changes. It can only be hoped that the use of a standard checklist will aid consistency with the approach of the courts.

We hope that updates such as this provide you with valuable intelligence on the Protocol and other related changes. If you have any questions relating to the Protocol or feedback on this update then please contact Julian Wintle, our Protocol Champion.