Craig Whyte, Castle Grant and Avoiding Mortgage Repossession

Craig Whyte, former owner of Rangers*, has another of his cases due in court today (4 July). This is the mortgage repossession case brought by the Bank of Scotland against Mr and Mrs Whyte in Inverness Sheriff Court. The bank wants to have orders granted entitling it to “enter into possession” of Castle Grant and for the owners and their tenants, family and belongings etc to be removed.

*The reference to being the owner of Rangers should of course properly read “Mr Whyte is believed to have been the owner of the company (Liberty Capital) which owned the company (Wavetower Ltd) which owned 85% of the shares in the company (Rangers Football Club PLC) which owned the assets and business which made up Rangers Football Club”! One can forgive the media referring, albeit incorrectly, to him as “the Rangers owner”.

Press coverage suggested Mr Whyte had been given two weeks to clear his arrears or face losing his Castle. That is possible though in most mortgage repossession cases the owner would not be given so stark a choice.

I have no knowledge, other than what has been published, about Mr Whyte’s case but bearing in mind the thousands of mortgage repossession cases going on in Scotland just now, I thought I could use his case as an example of how these cases progress and, hopefully, provide useful info for anyone now facing such a case.

Nothing below should be taken as legal advice, as each case rests on its own circumstances, and anyone facing repossession action should seek advice, whether from a solicitor, an In-Court Adviser (where available) or a Citizens Advice Bureau or similar body.

The key to these cases is the Home Owner and Debtor Protection (Scotland) Act 2010 which is one of the most important pieces of legislation passed by the Scottish Parliament.

Until that Act, a mortgage lender had the right to re-possess a property where the borrower fell into arrears. A court action was required and in certain circumstances a borrower could have the court make an order delaying exercise of the lender’s rights (Mortgage Rights (Scotland) Act 2001) but that could not deprive the lender of those rights.

The 2010 Act turned things around. Now lenders had to demonstrate compliance with various requirements before raising an action. The Pre Action Requirements (PAR) were designed to make it clear to a borrower falling into difficulties what might happen to them if they did not remedy their problem. The PAR requires lenders to be proactive in seeking solutions short of repossession. The lender has to tell the borrower where he can get advice.

Even once those steps have been taken, the lender can only get its court order where the Sheriff finds it “reasonable” to grant it. It is not for the borrower to show it is unreasonable.

In practice that fundamental change has little effect where a borrower does not take action.

One additional change in the 2010 Act required all mortgage repossession cases to call in court. Until then, if the borrower failed to lodge papers saying the action was defended, the lender could get their court order by sending a simple form to the Sheriff Clerk.

So if a borrower does not go to court or seek advice then usually repossession will be granted. Sheriffs are told what the arrears are and when the last payment was made. In a busy court, and a Sheriff might have 70 or 80 mortgages cases due to call, there is no time for the Sheriff to thoroughly investigate all aspects of the case if the borrower does not come to court. I have seen decrees granted for repossession where arrears have only been a few hundred pounds, and the monthly mortgage payment less than £100, simply because the borrower has done nothing about the court action.

In fact, if a borrower takes advice, as Mr Whyte has done, it is common to find that there is some flaw in the process by which the lender seeks to fulfil the PAR. Papers might have been served at the wrong time, or may have omitted required information. It takes proper advice, from a solicitor, In-Court Adviser or CAB, to identify this, and not all solicitors are up to date with the intricacies and technicalities of this area of the law.

There has been ground-breaking work done, especially by Mike Dailly of Govan Law Centre, who has been successful in having cases dismissed because the formalities have not been followed. The courts have accepted that the PAR is not a mere formality but instead essential steps in the protection of the debtor and the avoidance, where possible, of repossessions.

At the end of the day, lenders want their money. They do not want to have to re-possess properties and then sell them, as this often crystallises a loss for them. Many (though not all) lenders are flexible about arrangements to avoid re-possession, as long as they see the borrower being committed to the process. Taking advice is an essential part of this. After all, it is not the job of the lender’s lawyer to tell the borrower that the paperwork might be wrong!

Having a case dismissed does not eliminate the mortgage. It simply means that the lender has to go back to the beginning and do things properly.

One reason for this approach, which has been called pedantic and nit-picking, is that the UK Supreme Court decided in 2010 that, in fact, lawyers for lenders had not been carrying out re-possessions in accordance with the law for 40 years! This is one factor therefore which leads the courts now to consider that, before depriving a person of their home, the lender has to do everything according to the rules, and do so exactly right.

So, turning back to Mr Whyte, I am sure his lawyers will have carefully scrutinised all of the papers to see that the lender has fulfilled the PAR. Even if it has, it is always possible to defend the case by requiring the lender to show that it is reasonable to grant repossession.

The defender in such a case would be required to put forward some proposal or plan for dealing with the debt, if arguing on reasonableness. This might be that there is some money coming to them to assist in dealing with the arrears, or that assets are being sold, or, as in the case of the football agent I mentioned previously, that they were about to earn lots of money from the sale of footballers in the transfer window.

The choice for the court then is to decide if it is reasonable to grant the order for re-possession, which includes many different factors. There have been, as far as I am aware, no reported decisions yet on reasonableness in this context and until there are, there will be uncertainty about what the courts will accept as justifying decree being granted.

Whilst it is possible therefore that, in light of what was said to the court in Mr Whyte’s case, that he has been ordered to pay off arrears by today, it is more likely the case was continued to give him the chance to do so and, if he has not, then his lawyer would seek a hearing on the reasonableness of his proposals.

However, in a case like this, where there are two parties to the action, or indeed where the mortgage is in the name of one partner and the other lives in the home too, decree can be recalled at any time up to the actual re-possession taking place. If the other defender or “entitled resident” has not taken part in the court case, they have an automatic right to have any decree granted recalled, as long as they apply to do so before the repossession date (which is often far later than the court grants the order).

If the other party or entitled resident has taken part in the proceedings, then they cannot recall the decree. One decision therefore for an adviser is, if instructed by both debtors or both partners, whether or not to appear representing both, or whether, to retain the possibility of recall, to only appear for one party in the proceedings.

So, even if Mr Whyte has decree granted against him, if his estranged wife has not appeared or been represented in the case, then she could come to his rescue by recalling the decree. As they are separated however one suspects that any such action by her would be to protect her own financial interests in Castle Grant, which is of course entirely legitimate.

So Mr Whyte has done things right – he has taken advice – which greatly reduces the chance of decree being granted. Even if s of his wife, get that decree recalled.

Craig Whyte, in happier times

And either way, if he can come up with a way of meeting his mortgage commitments, then I am sure the bank will be very happy for him to do so!

Posted by Paul McConville