At March 31st 1928, the balance outstanding on almost 6,000 House Purchase loans had reached £1.7 million. A recent increase in the number of loans granted was partly due to the introduction of a Corporation policy to sell municipal houses. This policy was not entirely successful as reported by the General Manager to a meeting of the House Purchase Sub-Committee on December 5th 1927. The following is an extract from the Minutes of that meeting:
The Sub-Committee proceeded to consider the question of arrears and the General Manager presented the following Report, together with a complete list of cases where Mortgagors are 3 months in arrear with repayments and the circumstances in each instance:-
In certain instances the Committee decided that a Receiver be appointed, but after notifying the mortgagor of such decision, a payment was made and the direction then cancelled. Exactly the same procedure was followed on subsequent occasions with the same result. As a consequence of cancelling these decisions the mortgagors pay little or no attention to communications from the Bank as to the state of their accounts. It would be better for administrative purposes and much more effective, if, once the decision has been made, it is adhered to. These unsatisfactory cases, which do not usually spring from the poorer section of house purchasers, or weekly wage earners who have been badly handicapped, should be firmly dealt with as a lesson to others. One cannot help but feel that the liabilities to the Bank are being deliberately ignored, so as to use the money for other purposes, ie for their business, payment of rates etc. There is a feeling among certain mortgagors that the payment of rates, etc. must come before the Bank, and this is brought about by the issue of summonses or the taking of other drastic steps. It should not be admitted that such charges are preferential to payments under a mortgage, but so long as the Bank allows other bodies to be paid before them just so long will the practice continue.
In several cases of corporation houses which were dealt with under the original conditions, where the selection of a mortgagor was decided by the Estates Department and keys of the house handed over before the Bank Committee were consulted, it has been clear throughout the period of the loan that they were not suitable cases for purchase and ought to have been dealt with as tenants. It is a real hardship in some of the cases to insist upon purchase, and the Estates Department should be requested to accept them as tenants of other houses and re-sell the houses in mortgage to the Bank.
As to the policy which ought to be pursued in dealing with cases in arrear, the Town Clerk has drawn attention to what he fears is a misapprehension of the powers of the Corporation, and the effect of a Receiver being appointed. He points out that the appointment of a Receiver is a necessary course only when it is desired to satisfy the debt by receiving rents and profits out of the property, as for example in the cases of Stockman, Taylor, etc. A Receiver, when appointed, is the agent of a mortgagor for the purpose of collecting the rents and profits - not the agent of the Bank. Such an appointment by a mortgagee in possession has the effect of placing the mortgagor again in possession of the property. Under no circumstances is the entering of a mortgagee into possession or the appointment of a Receiver, a necessary preliminary to a sale by the Mortgagee. To avoid any difficulty in future the Town Clerk advises that the first question to be determined should be that of selling the property, and when decided upon, the sale should be affected without the previous appointment of a Receiver. It may be stated that the policy of the Ilford Corporation, who have conducted, very successfully and extensively, house purchase transactions for many years – even before the War – has always been to sell when they were of the opinion that the mortgagor was unsatisfactory, and they have never resorted to the practice of appointing a Receiver – a course they regard as cumbersome and ineffective.
In reviewing the question of arrears, and the impossibility of disposing of Corporation houses by auction under present conditions, the Committee would do well to consider whether the time has not arrived when the terms of purchase should be revised. The deposit required of sitting tenants of Corporation houses, viz, 1% of the purchase price, is not a sound proposition, as it prevents the Bank Committee exercising any discretion in such cases. The present low deposits of £20 for a non-parlour type house and £25 for a parlour type house should also be reconsidered. The margin between purchase price and loan is far too near to prevent loss in the case of an unsatisfactory mortgagor, and although that loss would, in the first instance, fall upon the Finance Committee, the policy should be to prevent such a possibility arising. That position would be eased by increasing the amount of the deposit required.
Allied to this question of low deposit, there is the position in the case of second purchasers. Where a mortgagor could not, owing to financial circumstances, continue his payments, permission to sell and discharge the mortgage has always been given, but it was found that sales could not be effected at a price equal to the original sale price, and a loan arranged equal to the outstanding liability, provided such liability did not exceed the original loan; thus allowing in many cases the low deposit terms to apply. In cases where the resale was affected at a price in excess of the original sale price, it has been the practice of the Bank and Finance Committees to advance such an amount only as would equal the original loan, again giving the benefit of the low deposit terms. It would be well for the Committee to bear this policy in mind when considering the larger question of deposit terms.
[Attached to the report were 3 schedules listing 189 advances in arrear:
A: 52 Non-Corporation houses;
B: 84 Corporation houses analysed by district:
17 - Acocks Green
9 - Yardley; Small Heath; Hall Green; Kings Norton
18 - Alum Rock; Bordesley Green; Northfield; Yardley Wood
14 - Erdington
26 - Kings Heath; Ward End
C: 53 Corporation houses on the Pype Hayes Estate]
The Sub-Committee discussed at considerable length the question of the steps desirable in the more serious cases, and Mr Martin of the Town Clerk's Department indicated the various courses of action open to the Corporation, as Mortgagees. The Sub-Committee gave special consideration to those cases of Corporation Houses where certain Mortgagors had declined to keep up their repayments and repeatedly ignored communications from the Bank thereon, and also to those cases where Mortgagors of Corporation Houses could not keep up the repayments under the Mortgage owing to their means being insufficient. Some of the Mortgagors in the latter category were sold houses without the Bank Committee having an opportunity of investigating the means of the applicant and before the improved procedure adopted by the Bank and Estates Committees came into operation.
It was felt that the procedure formerly adopted by the Bank of appointing a Receiver was for the reasons mentioned in the General Manager's Report unsuitable and inadequate in the majority of cases, and in many instances served no useful purpose. The Sub-Committee considered that the time had arrived when a different procedure should be adopted, and that definite action should in future be taken in cases where Mortgagors are persistently in arrear by taking legal proceedings for the recovery of the arrears and for obtaining possession of the property where payment of such arrears could not otherwise be satisfactorily obtained: or so far as Corporation Houses are concerned, where the means of the Mortgagor do not permit him to keep up repayments, by arranging with the Estates Committee to resell such houses after giving the former Mortgagors the tenancy of other houses.
RESOLVED:- That, in the particular cases undermentioned, the Bank Committee be recommended to authorise legal proceedings to be taken for the recovery of the arrears and for obtaining possession of the properties if that course is necessary; provided that no such proceedings be taken in cases where it is proposed that the Contractors shall take over the properties or where the Public Works and Town Planning Committee have recommended that an alternative house be offered until such offer has been refused, and that, in cases where repairs are to be carried out, the proceedings be deferred until it is reported to the Committee that the repairs have been satisfactorily executed or that the tenants have refused to allow the Corporation or the Contractors to have access to the property:-
[18 properties listed with total arrears amounting to £165. 17s. 6d.]
[60 properties (of which 41 were on the Pype Hayes Estate) listed with total arrears amounting to £803. 7s. 2d.]
On Tuesday, June 4th 1929, the Bank Committee reported to the City Council as follows:
The difficulty in connection with certain houses on the Pype Hayes Estate, to which reference was made in the last annual report, has been overcome; the mortgagors being dealt with in accordance with the directions of the City Council.