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Lord Lucas: My Lords, I am a little confused as to whether the noble Lord was talking to Amendment No. 110 as well as to Amendment No. 109.

Earl Russell: My Lords, I am dealing with Amendment No. 109, but I inadvertently let fall a single sentence which referred to Amendment No. 110. That was my error.

Lord Lucas: My Lords, I thank the noble Earl. We share the view that unnecessary repossession should be avoided, but the courts already have the discretion which this amendment appears to try to give them. The recent Appeal Court case of Cheltenham & Gloucester Building Society v. Norgan makes it clear that the remaining term of the mortgage should be taken by judges as the starting point for determining what constitutes a reasonable period for the repayment of arrears outstanding on a mortgage.

We feel it would be unhelpful to fetter the court's discretion in the way that this amendment does. In any individual case, what constitutes a reasonable period for repayment of arrears will depend on the circumstances of that particular case. This is a matter for the judge to decide after looking into the borrower's financial circumstances and the lender's position. As I have just said, the Appeal Court has made it clear that the starting point is the remaining term of the mortgage. Obviously there will be situations where that is entirely inappropriate: where the remaining term of the mortgage is so short that no reasonable repayment can be made over it, and where the remaining term of the mortgage is very long and the borrower has other assets which can easily be sold in the reasonably short term to provide the necessary additional payments.

These are situations where the courts need the flexibility they have at present in order to make the proper decisions. It has been suggested that case law alone will not lead to a change in the practice of mortgage lenders. We see no reason why this should be so. Indeed my right honourable friend the Minister for Local Government, Housing and Urban Regeneration has received a letter from the Director General of the Council of Mortgage Lenders, which acknowledges that lenders will have to take account of the Appeal Court judgment in dealing with future arrears and possession cases.

To the extent that there is any inconsistency in the exercise of the discretion of judges as to what constitutes a reasonable period, that may be due to inadequate guidance. Perhaps the case cited by the noble Earl is an example of that. Action has been taken to remedy it. Detailed guidance is set out in the judgment of the Court of Appeal. The Judicial Studies Board, which provides notes for the guidance of district judges in the exercise of their discretion, has updated the notes to alert judges to the judgment of the Court of Appeal.

The guidance for judges will ensure that the Court of Appeal judgment is quickly disseminated and is duly reflected in court decisions and lending practices. The noble Earl raises the question whether the

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amendment will benefit borrowers particularly when they are not represented in court. The best way to protect borrowers is to ensure that judges hearing those cases are fully aware of the judgment of the Court of Appeal, and that is already in hand. We believe the amendment to be unnecessary. I hope that the noble Earl will feel able to withdraw his amendment.

Earl Russell: My Lords, I thank the Minister for his reply. What he said about guidance went a long way to meeting my concern. But I ask him not to overrate the awareness of all judges, especially in lower courts, with the latest decisions. In the reign of Elizabeth I, judges discovered that for 18 years they had been hanging people under a repealed statute. I am not suggesting that any such errors occur today. But, when we consider our own inability to recollect conflicting provisions in Bills that we have passed within the past five years, we must be understanding.

I must ask the Minister to think seriously and consult his noble and learned friend the Lord Chancellor about the cost to public funds of people who become homeless because they are unrepresented at repossession hearings. It may wipe out the whole of the saving. However, that is for the future. For the time being, I am content to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Earl Russell moved Amendment No. 110:

Before Clause 200, insert the following new clause--

Negative equity

(".--(1) The power of the court under section 91 of the Law of Property Act 1925 ("the 1925 Act") to direct a sale of mortgaged property, on such terms as it thinks fit, shall, in respect of a dwelling house or part of a dwelling house occupied by a mortgagor in possession, include power to direct a sale free of the mortgage by the mortgagor, notwithstanding that the sum secured by the mortgage exceeds the sale price, and so to direct on terms that the mortgagor shall be entitled to deduct from the gross proceeds of sale his reasonable costs and expenses of effecting the sale before accounting to the mortgagee for the net proceeds.
(2) Where an application is made to a court by a mortgagee or any other interested person under section 91 of the 1925 Act for a direction that a mortgaged property to which subsection (1) applies be sold, the court may if it thinks fit suspend the making of the direction for a reasonable period to allow time for redemption or for the payment of any mortgage money or for sale by the mortgagor.
(3) Notwithstanding anything to the contrary in any other enactment, a County Court shall have jurisdiction under section 91 of the 1925 Act to determine an issue arising under this section whatever the amount owing in respect of the mortgage charge.").

The noble Earl said: My Lords, Amendment No. 110 also deals with mortgage repossessions, in particular reasonable settlements of mortgage debts. It has three parts. It provides a power to direct a sale free of the mortgage, which means that what is left over is debt minus the net proceeds. It gives power to suspend the direction for a sale for a reasonable period. It also makes clear that jurisdiction should lie with the county court.

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The same points made earlier about the need for reasonable settlements in the interests of all parties apply here, and I need not repeat them.

At the moment, a considerable number of cases that are going through are not in the carefully considered interests of either party. It may be that a junior official in a bank feels a cold breath down his neck. Not every junior bank manager has the benefit of the legal advice of the noble Lord, Lord Alexander of Weedon. Let us take as an example a case in Sussex where the borrowers fell into arrears on the mortgage. They tried to agree with the lender to sell the property for £115,000. They were refused permission to do so. The property was repossessed. A year later the lender sold the property for £90,000. By that time arrears had increased by a further £9,000. The final unsecured, unmet debt was £53,000. Clearly, that was not in the interests of anybody.

Another case concerned a woman separated from her husband. A buyer was found for the property and an offer of £19,000 was made. The lender refused to allow the sale to go through because it would not cover the outstanding loan which totalled £26,000. The property was repossessed. Eventually, the lender had to sell it, not for £19,000, but for £9,000. That was not in the interests of the lender, borrower or anybody else. I believe that this amendment would do something to meet a very real need.

It was at this point that I inadvertently allowed a line about unsecured debt to wander from one amendment to another, which I believe disconcerted the noble Lord, Lord Lucas. He could see, I think, that it belongs here where it should have been in the first place. Again, there is a Court of Appeal case--the Barrett case--which bears that out. But once again district judges do not know it, unrepresented borrowers do not know it, and it is not being acted on. I hope the amendment would clear up the situation. I beg to move.

Lord Lucas: My Lords, in the Government's view, Amendment No. 110 is unnecessary. It seeks to insert into the Bill proposals which reflect the recent decision of the High Court in the case of Barrett v. Halifax Building Society. In that case the court decided that the borrowers could sell their property to their buyer against the wishes of their lender because the lender could not in the foreseeable future improve upon the price agreed. The court therefore decided that its power to order a sale under Section 91 of the Law of Property Act 1925 was unfettered, though it was to be exercised judicially by having due regard to all the interests concerned. The court also decided that the borrowers could deduct reasonable costs of the sale before accounting to the lender.

The case followed the judgment of the Court of Appeal in the case of Palk v. Mortgage Services Funding in 1992, which decided that the court has the power to order a sale against the wishes of the lender if it was just and equitable despite the fact that the mortgage debt would remain unsecured. Again, the power has to be exercised judicially by taking account of the interests of all the parties.

The two judgments therefore make it clear that the courts already have the power to order a sale in the circumstances set out in the amendment. Furthermore, it is clear that the courts already have the power to suspend

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an order for sale to allow the owner time to negotiate a sale. The first two parts of the proposed new clause therefore add nothing to the present position under law. We are quite clear that the Council of Mortgage Lenders is fully apprised of the effects of these court cases in looking at the way in which its members should conduct their business in future. I do not have with me the guidance issued to district circuit judges as a result of the cases, but I shall obtain a copy and send it to the noble Earl before Third Reading.

The third part of the amendment seeks to extend the jurisdiction of the county courts in cases of this kind, regardless of the amount owed on the mortgage. My noble and learned friend the Lord Chancellor has given jurisdiction under Section 91 of the 1925 Act to the county courts where the mortgage debt does not exceed £30,000. As your Lordships will know, the report of the review of civil litigation carried out by the noble and learned Lord, Lord Woolf, is due to be published later this summer. As part of his review, the noble and learned Lord has been considering the appropriate forum for housing cases and the distribution of work between the High Court and the county courts. It seems to me that the appropriate course is for my noble and learned friend to be given the opportunity to take account of the aims of this part of the amendment in the context of the implementation of the recommendations of the noble and learned Lord, Lord Woolf. For all these reasons, I hope that the noble Earl will be able to withdraw the amendment.

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