A recent case that went to the Court of Appeal has helped to clarify the situation relating to the longevity of possession orders particularly when mortgagors fall into arrears more than once.
In the past, courts have reacted unfavourably to attempts to enforce an order which has already been suspended, where the arrears have subsequently been cleared by the borrower. It has generally been accepted that, once the arrears are cleared under a suspended order, fresh proceedings are required. Zinda v Bank of Scotland makes it clear that a possession order, once obtained, pertains to the life of the mortgage and can be invoked at any stage – and more than once if mortgagors persistently miss mortgage payments.
What was the trial about?
Mr Zinda had taken out a mortgage loan in 2003 with the Bank of Scotland and, at some point, fell behind with his interest-only payments. The bank applied for a suspended possession order (acting under s.36 of the Administration of Justice Act 1970). The order was in standard form (N31). It stated that possession of the home was to be given up to the bank but that the order was not to be enforced if Mr Zinda, firstly, paid off his arrears at £92 per month and, secondly, continued to make his usual monthly mortgage payments, which the order referred to as the “current instalments”. The bank subsequently agreed to consolidate Mr Zinda’s arrears with the outstanding capital and also agree a new, monthly payment schedule with him – although the term of the loan remained unchanged. The following year, Mr Zinda fell into arrears again. The bank responded by applying for a warrant of possession and Mr Zinda applied for the execution of the warrant to be suspended on the grounds that the original arrears had been paid off and that the new payment schedule effectively constituted a new agreement.
The District Court Judge dismissed his application and highlighted the wording on the order which stated that ‘unless you pay the current monthly instalments this order can be enforced’. Plainly, regardless of whether or not Mr Zinda had cleared his previous arrears, the fact that he had failed to keep up with his (agreed) monthly instalments meant that the order was enforceable. The point relating to whether or not a new agreement had been effected was dismissed because the fundamental contract i.e. the charge on the property created by the mortgage deed remained in force and unchanged.
Mr Zinda’s first appeal was dismissed. He was finally granted leave to appeal by Lord Justice Rix in January of this year but only on the point relating to whether or not a possession order ‘continues to bite for the entire length of the mortgage, even if the arrears which led to it being made have been paid up’.
At appeal, Mr Zinda’s claim that the consolidation of his original arrears and the new payment schedule constituted a new contract was dismissed on the basis that the mortgage deed remained fundamentally unchanged as the monies owing under the deed were not discharged and that no new contract was created. The only point that was conceded was the fact that Mr Zinda was not in arrears, albeit briefly, until he defaulted again. The issue at the centre of the appeal was the meaning and effect of the possession order.
The Court of Appeal noted that the bank was perfectly within its rights to seek possession of Mr Zinda’s property when he defaulted first time round and it was only through the intervention of the court (which he convinced that he could pay off the arrears) that the possession order was suspended on condition that he paid the ‘unpaid instalments under the mortgage…in addition to the current instalments under the mortgage.’ However, as Mr Zinda failed to comply with all his repayment obligations, which were clearly set out in the possession order, the court considered that there was no room for argument. Mr Zinda’s contractual obligations extended to the whole mortgage term and not just the period before the bank agreed to consolidate his arrears. Therefore, his appeal was dismissed.
What does this mean for lenders?
Up to now, lenders have tended to commence fresh proceedings where the arrears under a suspended possession order have been cleared in full. This case confirms that a lender can enforce its order for possession if the borrower does not maintain the agreed, current monthly instalments, even where possession is suspended and the arrears are subsequently cleared. This paves the way for a quicker route to possession in cases where there is repeated default though it will always be open to borrowers to apply for a stay if they can satisfy the court that they can clear the arrears within a reasonable period.
