No matter what stage of arrears a borrower is in, the lender’s objectives remain the same – to deal with the arrears and work out future payments. Ray Hugill, consultant at law firm Walker Morris LLP, talks through what borrowers can expect from their lender when they go into arrears
When a mortgage borrower misses a payment, or indeed part of a payment, the first contact they can expect from their lender can be within a matter of days of that payment becoming due. The contact will typically be by telephone, text or the more conventional letter.
Some lenders may be more proactive and through an analysis of payment trends, may even contact their borrowers before a payment is overdue.
The initial contact is made to determine the reason for non-payment, to consider how the missed payment can be repaid and how future payments are going to be maintained. It is likely that an affordability assessment will be made by the lender, from information supplied by the borrower, by completing an Income and Expenditure form and other comprehensive checks of the borrower’s financial circumstances.
Early communication with the borrower demonstrates a lender’s desire to work with their customer, to understand their problems and to try and come to a mutually acceptable way forward.
If the initial letter/call does not establish contact with the borrower, further communications will be attempted in a similar format until a solution is agreed or the account has deteriorated to a position of two payments outstanding.
Two missed payments
At this point the wording of the letters is likely to be a little more focused, though with the same intention of soliciting contact.
This second round of communications has exactly the same objectives, though clearly the arrears balance has increased and the longer payments remain unpaid the more difficult it becomes to reach an agreed way forward.
Three missed payments
If, however, no contact has still been established at the start of the third month in which a payment has been missed, the lender will consider instructing a field agent to visit the property. The aim of that visit will be to try and obtain the appropriate information that will dictate the next action to be taken by the lender.
In the absence of any contact or an agreed arrangement, when three full payments are overdue the lender is unlikely to allow the arrears balance to deteriorate further. At this point they will send a letter to the borrower giving them a short period (usually seven days) to contact the lender. Even at this stage, the priority objective is to get the account back on track and avoid further action if at all possible.
At any point a borrower can submit proposals for consideration, so that any further action can be postponed or any subsequent litigation action can be adjourned.
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How to complain
If you feel you have been treated unfairly by your lender, you can complain to them. If they cannot resolve your complaint you are entitled to take your grievance to the Financial Ombudsman’s Service (FOS).
The cases FOS usually deals with involving mortgage arrears typically include the consumer complaining about:
- difficulties in meeting mortgage payments.
- charges added to the balance of the mortgage.
- legal action for possession taken by the lender.
- costs incurred, or the price obtained for the property, where a lender has taken possession.
Consumers are often in financial hardship and disputes may include arrears charges; being unable to agree a payment plan with the lender; having difficulty in making payments; and unsympathetic responses from the lender or its agents.
FOS is not able to stop court proceedings that have been brought by the lender and it can’t provide advice on this; but it could ask a lender if it is willing to delay proceedings while it considers the complaint.
Contact FOS at www.financial-ombudsman.org.uk.
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Court Order
But if such proposals are absent, the lender is left with little alternative other than to instruct a solicitor from their legal panel to commence litigation action to try and secure a Court Order to deal with the outstanding arrears.
This action is often the trigger that produces contact from a borrower. Despite the matter now being in the hands of a solicitor, lenders will continue to deal directly with their borrowers and again the objectives remain the same – dealing with arrears and future payments.
Many arrangements are negotiated at this late stage and proceedings are often adjourned on the basis that agreed payments will be maintained.
If there is a further default in the payment arrangement, the lender will attempt contact to try and understand why the arrangement has been broken. The lender may even consider a repeat visit by a field agent. But the process for re-referral is not as elongated and if these actions prove unfruitful, solicitors will be re-instructed to pursue a Court Order.
Once a Court Order has been granted, if suspended on payment terms, an arrangement is more difficult to make. However, upon default of the terms of the Court Order, lenders will re-contact their borrower to understand the specific reason for default and aim to agree a payment plan to prevent the enforcement of the Order.
Warrant for possession
The penultimate step will see the lender enforce the Order and to seek a warrant for possession of the property. It is surprising just how many borrowers at this stage in proceedings either come up with the funds to clear their arrears, or at least substantially reduce them to a level where their lender will defer further action.
For those borrowers not able to raise funds or submit satisfactory proposals, the probability is that they will be evicted from their properties. This is the last resort for a lender, when no other options are possible.
Forbearance
At all points of the end-to-end arrears process, lenders will attempt to gather information about the borrowers finances etc, so that an informed decision can be made as to what further action to take. As soon as the lender is in receipt of such information, a range of options can be considered, including offering short-term forbearance to borrowers, to help them to overcome their temporary financial difficulties. This forbearance can be in a number of formats including:
- Reduced payments.
- Suspended payments.
- Transfer to/from interest-only payments (as opposed to capital and interest payments).
- Extending the term (number of years) of the mortgage.
- Capitalisation of arrears, whereby the outstanding arrears are effectively added to the mortgage debt and collected over the remaining term of the mortgage with slightly increased monthly payments.
- Extended arrangement to clear the balance of arrears over a period which can be up to the remaining term of the loan.
- Payment holiday.
- Voluntary sale of your property.
Borrowers can also expect from lenders:
- A sympathetic approach to illness, bereavement etc.
- Being treated as individuals.
- Being treated fairly and consistently.
- A full explanation of each part of the arrears process.
- A clear explanation of decisions and referrals.
- Lenders willing to work with them.
- Same person contact within the lending organisation.
- Short and long-term solutions to payment difficulties.
- All discussions/agreements confirmed in writing.
- Referral to external fees-free advice agencies.
- Any complaints auctioned within the timelines laid down by The Financial Ombudsman.
Any actions taken will potentially come under scrutiny on litigation via the Pre-Action Protocol. They will also come under the close scrutiny of consumer groups and ultimately by the regulator (The Financial Conduct Authority).
Given the vastly reduced numbers of repossessions, it can be assumed that these actions are working. Or is it the benign market in which lenders are operating today? I suspect we will get the answer when interest rates increase and lending levels rise. We may not have to wait much longer for either.
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Help from debt charities
Free independent advice is available from debt charities including:
- Citizens Advice –
www.citizensadvice.org.uk - National Debtline –
www.nationaldebtline.org - Step Change Debt Charity –
www.stepchange.org - Money Advice Trust –
www.moneyadvicetrust.org - Money Advice Service –
www.moneyadviceservice.org.uk - Local law centres –
www.lawcentres.org.uk - Pay Plan –
www.payplan.com
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