Falling into mortgage arrears can be one of the most stressful experiences a homeowner faces. For many borrowers, the first indication that matters have escalated is the arrival of a formal demand letter and often this is followed by correspondence threatening possession proceedings.
Mortgage default does not automatically result in repossession. The legal framework governing lender enforcement in residential property places emphasis on proportionality, fairness and the borrower’s ability to remedy arrears. Central to that framework is the court’s statutory discretion to delay or suspend possession where repayment is realistically achievable.
This article explains how mortgage default arises, how lenders enforce their security, the role of the court under section 36 of the Administration of Justice Act 1970, and the rights and options available to borrowers facing the prospect of losing their home.
Mortgage default and the lender’s security
A residential mortgage is both a loan agreement and a security arrangement. The borrower is obliged to repay the loan in accordance with the mortgage terms, while the lender takes a legal charge over the property as security for that obligation.
Mortgage default most commonly arises where a borrower falls into arrears by failing to make the required monthly payments. Default may also occur where the borrower breaches other mortgage conditions, such as failing to insure the property, falling into arrears on linked secured lending, or letting the property without the lender’s consent.
Once a default occurs, the lender becomes entitled, in principle, to enforce its security. That enforcement often takes the form of possession proceedings, although possession is not intended to be automatic or punitive.
Pre-action conduct and early engagement
Before commencing possession proceedings, residential mortgage lenders are expected to engage constructively with borrowers and consider alternatives to possession. This includes providing clear information about the arrears, exploring repayment proposals, and allowing borrowers reasonable time to seek advice.
From a borrower’s perspective, early engagement is critical. Courts can look unfavourably on cases where correspondence has been ignored or opportunities to resolve matters have not been taken. Where a borrower can demonstrate a realistic plan to address arrears, lenders are often prepared to consider temporary arrangements or revised payment schedules.
However, informal arrangements provide limited protection. Where financial difficulties are ongoing, legal advice is often necessary to ensure that proposals are realistic, properly evidenced and capable of being relied upon if proceedings are issued.
Possession proceedings and the court’s role
If arrears persist and no agreement is reached, the lender may issue possession proceedings in the County Court. This is a formal legal process seeking an order for possession of the property.
Importantly, the issue of proceedings does not mean that repossession is inevitable. The court does not merely enforce the lender’s contractual rights but exercises a statutory discretion when determining whether possession should be ordered and, if so, on what terms.
Borrowers are entitled to file a defence, attend the hearing and explain their position and their financial circumstances. The court will expect to see clear evidence of income, expenditure, arrears and any proposals for repayment.
Section 36 of the Administration of Justice Act 1970
A central protection for residential borrowers facing possession is section 36 of the Administration of Justice Act 1970. This provision gives the court power, in cases involving a mortgage of a dwelling house, to adjourn proceedings, suspend execution of a possession order, or postpone the date for possession.
The key question under section 36 is whether the borrower is likely to be able to pay any sums due under the mortgage, including arrears, within a reasonable period to avoid facing possession. If the court is satisfied that this is achievable, it may allow the borrower to remain in the property subject to conditions.
The court can therefore exercise discretion to give borrowers time to pay the arrears by adjourning proceedings, staying execution, or suspending possession, provided the borrower is likely to pay off sums due within a reasonable period.
What constitutes a “reasonable period” is fact-specific. Courts will consider the size of the arrears, the remaining term of the mortgage, the borrower’s income and expenditure, and any evidence of a change in circumstances. While there is no fixed formula, courts often assess affordability over the remaining mortgage term, particularly where arrears are not excessive.
Section 36 does not extinguish the lender’s rights, but it enables the court to balance those rights against the borrower’s ability to remedy the default and retain their home.
Suspended possession orders and compliance
Where a suspended possession order is made, compliance is critical. If the borrower adheres to the payment terms, the lender cannot enforce possession. However, if payments are missed, the lender may apply to enforce the order without issuing fresh proceedings.
Borrowers who experience further difficulty should seek advice immediately. Courts retain the power to vary or re-suspend possession orders if circumstances change, but delay can significantly reduce the prospects of success.
Disputes beyond arrears
Mortgage possession proceedings are not always straightforward arrears cases. Borrowers may challenge the accuracy of the arrears figure, dispute the application of interest or charges, or raise concerns about the enforceability of the loan agreement.
In more complex cases, possession proceedings may intersect with other property disputes, such as leasehold breaches, service charge arrears or competing secured lending. These cases require careful handling to ensure that all relevant issues are properly before the court.
Consequences of possession and sale
If possession is ultimately enforced and the property is sold, the proceeds are applied first to discharge the mortgage debt and enforcement costs. Any surplus is returned to the borrower, while any shortfall remains the borrower’s liability.
This is a crucial point. Repossession does not necessarily end the borrower’s financial exposure. Where the sale price is insufficient to clear the mortgage, the lender may pursue the borrower for the remaining balance.
The importance of early legal advice
Mortgage default cases are highly fact-sensitive, and outcomes often turn on the quality of evidence presented to the court. Early legal advice can assist borrowers in understanding their rights, preparing realistic repayment proposals and engaging effectively with lenders.
For lenders, timely advice ensures that enforcement action complies with statutory requirements and reduces the risk of delay or challenge.
Conclusion
Facing possession proceedings following mortgage default is undoubtedly daunting, but repossession is not automatic. Borrowers who engage early, present credible repayment proposals and obtain appropriate advice are sometimes able to avoid the most severe consequences. Conversely, inaction or misunderstanding of the court’s powers can lead to unnecessary escalation.
Specialist property litigation advice is essential in navigating these cases and achieving proportionate, practical outcomes.
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Ben Lewis is an associate solicitor in RFB’s litigation department.
For enquiries on this topic, please contact Ben Lewis via email at B.Lewis@rfblegal.co.uk or by phone on 0203 947 8892.
Ben Lewis
Associate Solicitor
