Brown: Early repossession "unacceptable"

Gordon Brown today described a move to repossess the home of a borrower just two months in arrears as "unacceptable".

In a case brought in the High Court, it was argued and won that a lender could sell the property of a buy-to-let borrower who was in arrears without a repossession order.

The ruling was based on a 1925 law.

Today Mr Brown, in his monthly news conference, said: "This is not an acceptable situation.

"We said very clearly there were rules [for banks] to go through."

He said the government was calling on lenders to offer borrowers the option of extending the length of their mortgages if they are in trouble and allow them to switch to interest-only mortgages.

"There are millions of homeowners… we are determined only a few are repossessed."

Mr Brown also called for new "responsible lending" and further protection against repossession.

The Council of Mortgage Lenders (CML) refused to comment on the case, but maintained repossession should remain the "last resort".

"For a lender it makes no business sense to take possession. It makes no sense at all," a CML spokesperson said

"We want to get the loan performing again."

She added there were sufficient checks in place to ensure possession was the last resort including the courts themselves and lenders had worked with

The Ministry of Justice (MoJ) has also confirmed was investigating the case and justice secretary Jack Straw was taking legal advice to see it further action is needed to protect homeowners.

A MoJ spokesman said: "Given the current economic situation, the government is working hard to ensure that people losing their homes is a last resort."

The case covered a buy-to-let property where lender GMAC-RFC passed a property to receivers that sold the property at auction, which eventually ended in the hands of Horsham Properties.

GMAC-RFC had taken action against the owners as they were in arrears and in breach of the occupancy condition by being resident in the buy-to-let property themselves.

The High Court ruled GMAC-RFC was entitled to do this without a court order - although the lender was not directly involved in the case.

With the previous owners still in the property, Horsham tried remove them, leading to the case.

The MoJ spokesperson added: "The Horsham case confirms the long standing right of a mortgage lender to sell a property without a court order by virtue of the mortgage agreement where the borrower is in arrears.

"However, such cases are rare because the borrower cannot generally be required to leave the property without a court order."

GMAC-RFC maintains the 1925 law would not be used to make a repossession for residential mortgages.

A GMAC-RFC spokesperson said: "The power of a mortgage lender to appoint a LPA Receiver and for the receiver to sell the property is well established and is frequently exercised by the industry in the case of buy-to-let mortgages.

"A receiver would not have been appointed by GMAC-RFC had the mortgage been in respect of a residential home loan where the borrower was expected to occupy the property.

"Furthermore, for vacant buy-to-let properties in arrears, GMAC-RFC would follow the standard possession route."