When and how a creditor in a standard security can take action, and the protections in place for the debtor when it does, are the focus of a new discussion paper from the Scottish Law Commission.

The paper is the second from the Commission consulting on reform of the law of securities granted over land and buildings in Scotland. Scottish Government statistics show that at least 2,204 repossession cases by creditors were begun in the Scottish courts in 2019-20. Much of the current legislation dates back over 50 years, however, and has been made more complex by piecemeal amendments over the years. It is questionable whether the current regime remains fit for purpose.

The Commission proposes a new, streamlined scheme for enforcement of heritable securities in Scotland. The paper covers:

  • the circumstances which should trigger a security holder’s right to take action against a debtor;
  • the steps a security holder must take prior to exercising the security, including enhanced protections available to debtors who are at risk of losing their homes;
  • the remedies available as a result of the security, including the power to collect rent from tenants where the mortgaged property is leased, the power to eject occupants and sell the property, and the power to foreclose (where the security holder takes ownership of the property);
  • the expenses of enforcement action and how these should be met;
  • issues of ranking between securities, where more than one security has been granted over the same property.

A total of 69 questions are put to consultees, including duties on security holders when exercising remedies, which debtors and properties should qualify for enhanced protection, how to ensure fair warning to a debtor, and the remedies available to a security holder.

While the general ethos of the project is to aim for “evolution, not revolution” in the law, the Commission says its provisional proposals are designed to achieve substantial improvements across the enforcement process as a whole. It is keen to hear from everyone with an interest in the issues raised, including individuals businesses, third sector organisations who work with debtors, and legal practitioners and academics.

Professor Frankie McCarthy, lead commissioner on the project, commented: "It is a fact of life that lenders will sometimes have to exercise their mortgage rights to recoup money owed. It is vital for both borrowers and lenders that the law is as clear as possible on how this can happen, and that appropriate protection is given to debtors, particularly where they may be at risk of losing their home. This discussion paper asks important questions about how to improve the current law and strike the right balance between the interests of borrowers and lenders. We hope to hear from a wide range of people to ensure our eventual recommendations for reform take into account the needs of everyone with an interest in mortgage law in Scotland."

Click here to access the discussion paper. Comments can be made until 1 April 2022.