Cutting costs and saving time: the Global Substitution Order

Updated November 2011

In keeping with its proven track record of innovation in legal services, TLT continues to work with its clients in the development of new, cost-effective legal solutions.

One recent example is our development for our mortgage lender clients of a new court application to facilitate the purchase or transfer of large mortgage portfolios.

Previously, in cases where mortgages in those portfolios were subject to litigation, our clients were faced with the prospect of making applications to substitute the new owner as claimant in each set of proceedings.

TLT’s pioneering procedure, which we have christened the Global Substitution Order, has enabled our clients to make significant savings in terms of time and money.

The problem

When financial institutions purchase portfolios of mortgages, the seller's interest in any court proceedings relating to those mortgages (such as repossession actions) is also transferred to the buyer or buyers.

To comply with the Civil Procedure Rules, an application is then required to the relevant court pursuant to CPR Part 19.2 for an order substituting each buyer as claimant in the relevant proceedings.

In the case of a large portfolio of mortgages, this generally involves multiple substitution applications being required on a case by case basis following the transfer of the portfolio.

For some mortgage portfolios, this can mean thousands of individual applications to the courts, significant room for error, and a major legal bill. For example:

• The court fees payable on issue of 1,000 applications for substitution would be £45,000.
• Legal fees for 1,000 separate applications could exceed £200,000.

On top of these direct costs, the traditional process involves significant management time to organise and manage the process to monitor the making of applications and the service of related documents.

The scope for mistakes in that process is clear. And those mistakes, while purely technical in nature, could lead to significant problems in terms of the enforcement process and therefore represents a significant risk to lenders.

The solution

The Global Substitution Order is an innovative and highly efficient solution, for which there is no legal precedent. It involves making just one single application for an Order, substituting the buying party as claimant in all proceedings connected with the portfolio, thereby avoiding the need for individual applications.

The process which TLT developed is unique and technically complicated.

The county courts usually have exclusive jurisdiction over mortgage-related litigation, and no mechanism normally exists to permit one county court to make orders in respect of proceedings in other courts.

TLT's litigation experts therefore had to identify a means of having jurisdiction over all county courts conferred on one Judge, which they did by way of an application to the Lord Chancellor and Lord Chief Justice to request that a High Court judge be given express authority to sit as a judge in all county courts in England & Wales.

Once that authority was obtained, the Global Substitution Order was born.

The Global Substitution Application

The application for a Global Substitution Order is a single application supported by witness evidence which demonstrates that the legal interest in the court proceedings within the portfolio has been transferred to the buyer.

Confirmation is also required from the Land Registry that registration of the change of ownership of the relevant mortgages has been completed.

There is normally no need for a hearing: the application is dealt with by the Judge on paper.

Having obtained the Global Substitution Order, we then make arrangements with our clients to serve it on each defendant and county court. The Global Substitution Order becomes effective on service.

Benefits of the Global Substitution Order

The benefits of the Global Substitution Order for TLT's clients have been significant, the three most obvious being:

• Cost: TLT's development of the Global Substitution Order has resulted in significant savings for our clients. Savings on fees of £150,000 have been achieved in many cases. For added certainty on fees, TLT makes Global Substitution Order applications on a fixed fee basis.
• Time: Our tried and tested process has resulted in Global Substitution Orders being obtained from the court within a matter of days. Individual substitution applications would traditionally stretch over many months.
• Certainty: A crucial benefit. Once the Global Substitution Order is obtained and served, the new party is substituted in all cases which the Order covers, greatly limiting the scope for error.

For more information on Global Substitution Orders please contact Chris Owen.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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