REPOSSESSION - What to expect if your farmhouse is to be repossessed.
The nature of farming is that often the Bank has a charge over a farmer’s home to support the business borrowing. This charge may be part of a larger piece of land. The trend in the last decade has been for Banks and lenders to avoid taking a person’s home as security. However, there are instances when this is appropriate and unavoidable in order to ensure a farming business is adequately financed.
When a home is taken as security the standard of lending criteria can be stricter, indeed, depending upon the total area of the security it is possible that lending against a person’s home is subject to greater regulation by the Financial Conduct Authority if it is deemed to be a Regulated Mortgage Contract. This is usually the case if the house and garden make up the majority area of the security. Your lender will describe this in detail to you when you take out or renew borrowing. Even without this added due diligence and protection the bar is set high for lenders seeking repossession of a home to be seen to do as much as reasonably possible to avoid repossession.
In my professional life I have only seen two repossessions of farmhouses. Sadly, one was due to the death of the borrower and there being no other person to run the farm and estate the farm had to step in to realise its security; the other was after substantial action was taken to prevent debt defaulting and was brought about by insolvency action taken by fuel and seed suppliers forcing the Bank to protect its interests. The simple fact is that any Bank security is there as a last result. Responsible lenders do not wish to realise their security and will try and work with borrowers to avoid this, or encourage the borrower to realise the security themselves in a controlled manner so that the borrower receives the best value for the asset whilst repaying the Bank.
However, I fear there is an increased risk of business failure as costs have increased without a proportionate increase in revenues eating into both cash and borrowing buffers that farmers have making the weathering of a crop failure, market failure or other financial event even harder.
Because of this increased risk I will describe what can be expected if a farmer is to have his home repossessed, emphasizing that this would be a lender’s last resort and alternatives should be exhausted before this point is reached.
To take possession of a home a lender is expected to follow Mortgage Conduct of Business and that repossession is seen to be a last resort.
The lender has to be seen to have explored the following avenues of action:
- Delay of interest payments
- Extended term of debt
- Change to type of mortgage or loan
- Ability to add arears onto debt.
Every time a payment is missed on a loan secured on land or in this case a home the lender should within 15 days issue notice of the missed payment together with details of any charges and interest. This should also be issued with details on how to pay any arrears.
Before taking action against you the Bank will be expected to have made at least three attempts at dialogue or negotiation and to be able to describe these.
Fifteen days prior to going to court the Bank must notify you in writing of its intention to go to court giving you the following details:
- A list of missed payments
- Amount of debt outstanding
- Amount of arears and the number of days it has been outstanding
- Details of the last two year’s payments
- Details of all interest and charges
- Details of monthly installments ( 0r equivalent if quarterly or annual).
At this stage you should IMMEDIATELY propose a repayment plan – this may buy you time. The Bank has 10 days to reject it and detail in writing why it rejects it.
The lender MUST write to you five days before taking court action and explain in that notification why they are taking that action.
The preferred action by any lender is to see the borrower sell the asset themselves and try and realise the maximum amount for their security and home. If you decide to do this you must take steps to sell your home and land end evidence this to the Bank providing them with and disclosing full details and evidence of the marketing of the property. This may enable you to control the process to some degree.
If you do not do this the Bank will continue to go to the court. However, it has to fulfill a checklist to the court’s satisfaction (see link: Form N123: Mortgage pre-action protocol checklist - GOV.UK (www.gov.uk) ). This is a mortgage pre-action protocol checklist, if not actioned and completed the court may throw out the court action, or more likely adjourn the hearing instructing the lender to complete the protocol before returning to the court. This may buy you time.
This is never easy, but inaction by yourself and not making tough decisions will work against you. You also have the added problem that you will not be eligible for help with housing from your local authority until the day you are evicted and the options available to you are likely to be grim.
Charities that you may look to for support are:
Addington Fund Retirement Homes — Addington Fund
Farm Community Network Farming Community Network - Farming Community