Consolidation of a loan to take account of arrears does not preclude the lender from seeking to enforce a suspended possession order.

In Bank of Scotland v Zinda, the borrower fell into arrears on the mortgage. The bank obtained a suspended order for possession, the wording of which was in the standard form (Form N31). The arrears were subsequently consolidated with the outstanding amount of the loan. The borrower fell into arrears again and applied to suspend enforcement of the possession order. The bank issued a warrant of possession. The borrower alleged that the effect of the consolidation had been to discharge the arrears which existed at the date of the suspended possession order and roll those arrears into the larger loan. As there were no longer any arrears, the possession order had thereby been extinguished and so could not subsequently be enforced. The borrower argued that for the possession order to follow the entire life of the mortgage was disproportionate and illegal.

The Court of Appeal allowed the appeal on that point alone. It held that the act of consolidating the arrears with the loan did clear the arrears but did not replace or discharge the original mortgage deed or the security created by it.

However, the possession order had been suspended on the conditions that the arrears and the current instalments were paid by the borrower. Both those conditions had to be complied with to avoid repossession. The fact that the arrears were discharged by reason of the consolidation was not enough if there was then failure to comply with the second requirement that all future instalments be paid. That requirement was not time limited but extended for the entirety of the mortgage. The borrower was being asked to do no more than he had agreed to do and the possession order had not been extinguished.

Things to consider

This was a short but important point of principal that the court had to decide as the standard wording had been used in the possession order. Had the borrower been correct, in that the consolidation of his arrears into a larger loan in effect discharged the possession order obtained, lenders would have had to have considered the wording of all future possession orders very carefully.