No better substitute
In the light of a recent increase in mortgage book transfers, litigation associate Edmund Fiddick of national law firm TLT explains the benefits to lenders of the Global Substitution Order
The marked increase in mortgage book transfers over recent years - as lenders and firms sell-off, reorganise and securitise their portfolios – has brought about an increased focus among advisors and clients alike on the efficiency of the processes involved.
TLT has been involved in large transactions involving many mortgages being moved between entities (both under contract and FSMA Part VII Orders). The desire to find on behalf of lenders a quicker, cheaper and more flexible approach to this work has led to us developing the Global Substitution Order (GSO) to facilitate the transfer of all ongoing litigation relating to the transferred mortgages to the new owner.
GSOs give lenders a number of significant advantages, and this has been independently recognised by the Financial Times which recognised TLT for developing the Global Substitution Order in its Innovative Lawyers report 2009 (http://rankings.ft.com/innovativelawyers/financial-services-2009). These benefits include:
Cost
On the transfer of any mortgage which is subject to litigation, the Civil Procedure Rules (CPR) require an application to deal with the substitution of the new charge holder as claimant in each ongoing action. Traditionally, this would involve applications being made in every case, creating a major headache for lenders, administrators and their advisers having to deal with large volumes of legal proceedings within a portfolio.
The GSO is a single application for a single order. The order substitutes the buying party as claimant in multiple cases at once by reference to an annexed schedule.
On that basis, and given that it is a discrete application, it can be prepared by solicitors on a fixed-fee basis and a single court fee of £45 is payable. The cost saving in terms of court fees alone for a thousand cases is therefore the best part of £45,000, leaving aside the much more significant solicitors' fees which would be generated by those thousand applications.
Speed
The GSO application process is relatively quick. Having paved the way for the application with the relevant authorities, the GSO can generally be obtained within two to three weeks of the application being made. It can be submitted as soon as legal title to the relevant mortgages has transferred. This again compares favourably to the traditional approach, where multiple applications would often proceed in different cases over the course of some months or years.
Flexibility
In one particular transaction which we completed earlier this year, the need to ensure proper substitution was complicated by the fact that the portfolio in question was being transferred to several special purpose vehicles (SPVs). The involvement of multiple parties is not uncommon, but the GSO reduces the additional administrative burden of ensuring that all applications substitute the correct new owner. In this case, one application could be made for multiple orders (one for each SPV), reflecting a further cost saving and greatly increased efficiency.
Further flexibility is seen in the fact that the Global Substitution application can be made by either party to the transfer (transferor or transferee), enabling the parties to agree between them who is to take responsibility for ensuring that substitution is conducted properly. The transferor can therefore take control to ensure it is properly substituted and avoid surprises later, for example.
Certainty
As well as providing added certainty on fees, by dealing with all cases in a portfolio in one go, lenders can all but eliminate the risk of errors. That risk can be significant when dealing with many separate county court applications, and any error could later derail the related proceedings.
This appears to have been a determining factor for many clients instructing TLT. On the basis that the case data supplied with the GSO application is accurate, great comfort is taken from the fact that the GSO obtained fully deals with substitution in all the cases to which it refers.
At the same time, in our experience, the GSO will rarely (if ever) be questioned by the County Courts. The different approaches taken by different District Judges to matters such as substitution, and the different formalities required by them, is all but eradicated.
Simplicity
Another key advantage for lenders and administrators is that the GSO process significantly reduces the administrative burden.
The need to coordinate panel solicitors to make substitution applications is avoided. Once issued, the order is required to be served on the relevant defendants and County Courts, a straightforward mailshot exercise with the appropriate technology in place.
Continuity of proceedings
Once the GSO has been obtained, lenders have the peace of mind that no further steps should be required to deal with substitution. The prospect of time being used at future hearings, or the possibility of hearings being adjourned for the court to consider a change of claimant, is avoided.
At the same time, the GSO application is made without notice to the defendants and without a hearing. This can help to avoid creating suspicion from defendants who might otherwise seek to question or challenge an individual substitution application in the proceedings, which can be a further and frustrating source of delay.
Edmund Fiddick is an associate and dispute resolution expert at national law firm TLT edmund.fiddick@TLTsolicitors.com
