CODE OF CONDUCT ON MORTGAGE ARREARS

In February 2010 the Financial Regulator issued an updated Code of Conduct on mortgage arrears to be followed by all financial institutions dealing with Home Mortgages. This article will set out the main points in respect of the updated code of conduct.

The code covers the provision of finance for the primary residence only and it sets out a framework within which the mortgage lenders must operate and that such procedures would be aimed at assisting the borrower as far as possible in his or her circumstances. The code sets out what the lender must do when managing mortgage arrears cases.

The code is issued under Section 117 of the Central Bank Act 1989.

HOW TO AVOID A MORTGAGE ARREARS PROBLEM

(a) As soon as an arrears situation develops the lender must communicate promptly
and clearly with the borrower to establish firstly, why the repayment schedule has not been complied with and secondly how the situation may be rectified.

(b) It is in the interest of both the lender and the borrower to address a “missed payment situation” as quickly and effectively as possible and the code recognises this.

HOW SHOULD A BANK HANDLE A MORTGAGE ARREARS PROBLEM IN COMPLIANCE WITH THE CODE OF CONDUCT?

(a) Where the arrears situation continues the lender must continue in its attempts to make contact with the borrower by way of either further correspondence, telephone or a meeting with the borrower.

(b) Once contact has been established and the borrower is prepared to co-operate with the lender, all viable options open to the borrower must be examined during which consideration must be given to his or her repayment capacity, previous payment history and any equity remaining in the property.

(c) If a third repayment is missed the lender may issue a formal demand for either the full amount due on foot of the mortgage or for possession of the property and the borrower must be advised in writing of the following :-

  1. The total amount of arrears.
  2. Where applicable any excess interest that may continue to be charged and the basis on which this will be charged.
  3. Advice regarding the consequences of failing to respond i.e. the potential for legal proceedings to be issued and the loss of his or her house together with an estimate of costs to the borrower of such proceedings.

(d) If the arrears situation continues then the lender may proceed to enforce the mortgage agreement. However it must wait at least twelve months from the time arrears first arise before applying to the courts to commence enforcement of any legal action or repossession of a borrowers primary residence.

(e) The lender must notify the borrower in writing when it commences the enforcement of any legal action on repossession.

THE LENDER MUST TAKE THE FOLLOWING FACTORS INTO CONSIDERATION WHEN ADDRESSING A MORTGAGE ARREARS PROBLEM.

(a) Every arrears situation should be examined on its individual merits.
(b) The borrowers overall indebtedness in establishing his or her ability to repay.
(c) The lender must explore the borrowers alternative repayment measures for example the amount of monthly repayments could be changed or extending the term of the loan mortgage , arranging the type of mortgage or deferring payment of all or part of the instalment repayment.
(d) Whatever option is chosen the lender must explain clearly in writing to the borrower details of the alternative repayment arrangement that is being agreed together with details of any costs or additional interest that may arise with that option.
(e) The lender must continue to monitor the repayment arrangement.
(f) The lender must advise the borrower to take the appropriate advice regarding their budget and if appropriate refer them to their local Money Advice and Budgeting Service (MABS) or appropriate alternative.
(g) The lender should liaise with the third party nominated by the borrower, at the borrowers request with the borrowers written consent.
(h) The borrower must be made aware of other options such as trading down, voluntary sale or alternative re-financing through another lender.

REPOSSESSION PROCEEDINGS

The lender must not seek repossession of the property until every reasonable effort has been made to agree an alternative repayment schedule. If the borrower is deliberately not engaging with the lender, or where other circumstances are reasonably justified, the lender may seek repossession in the absence of any engagement with the borrower.

Repossession of a Property may come about by voluntary agreement with the lender, through abandonment of the property by the borrower without notifying the lender or by Court Order.

Even where legal action is being taken to obtain an order for repossession the lender must endeavour to maintain contact with the borrower or his or her nominated representative. If agreement can be reached the lender must enter into repayment arrangements and put a hold on proceedings in the event of agreed regular repayments being maintained.

The lender must inform the borrower that irrespective of how the property is repossessed and disposed of, the borrower will remain liable for the outstanding debt, including any accrued interest, charges, legal, selling and other related costs, if this is the case.