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Unit 6 - Arrears & Repossessions > Arrears & Repossessions > Flashcards

Arrears & Repossessions Flashcards

1
Q

MCOB 13: Arrears & Repossession

A

Details lender responsibility

  • Repossession as a last resort
  • Lender must treat the borrower fairly
  • Take a reasonable approach to the timescale of any repayments allowing the borrower to change the date of payment if useful
  • Records kept for 3 years
  • Lender can let the borrower stay in the house until it is sold
  • Lender must refrain from unreasonable pressure #
  • If the client has insufficient funds the lender must make contact to discuss how to make a payment
  • Lender mustn’t pass on the costs of a failed DD
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2
Q

Within 15 days of becoming aware or arrears (mon-fri)

A
  • FCA money advice service information sheet
  • Details missed payments
  • Total arrears and charges
  • Total outstanding debt & any further charges
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3
Q

Repossession Procedure

A
  • No undue pressure via excessive phone calls, correspondence or at an unreasonable hour
  • Lender provides written update of the procedure
  • Borrower is informed to contact local authority for rehousing
  • Lender must list for sale ASAP to get the best price
  • Must be a reasonable price, not priced low for a quick sale
  • Must inform the client of any shortfall as they will still be liable
  • Must inform the client of debt from an insurer via subrogation
  • If the lender wants to pursue shortfall they must do so within 6 years
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4
Q

Lender Help States in Repossession Procedure

A

Short Term Measures
+ prior to litigation, within 3 months

Medium Term Measure
+ cases within 12-months, once litigation has started

Long Term Measures
+ those that attempt to reschedule the loan over the long term

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5
Q

Payment of Arrears - Increasing Payments

A
  • Debt is rescheduled and payment size increases over 12 months
  • If this goes to court and the client has been ill or unemployed the court can grant payment over max 4yrs to pay it back
  • Lenders keep records or payment failures
  • Lenders can help with a budget plan
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6
Q

Payment of Arrears - Accepting Interest Only Payments

A
  • Remaining debt to be paid at some point
  • Only for Capital Repayment
  • If it’s in the early years the interest is higher so there isn’t to much difference
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7
Q

Payment of Arrears - Extending the Term

A
  • Only effective on Capital Repayment
  • Keeps the payments the same
  • Adds the missed payments to the term
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8
Q

Payment of Arrears - Capitalising on Arrears

A
  • Adding arrears to the mortgage & making higher payments
  • Lender mustn’t capitalise arrears automatically if it makes a material effect i.e. increases interest by £50+ over the term or monthly payments £1+
  • Lender must give the borrower details of the impact
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9
Q

Other Repayment of Arrears Options

A
  • Surrendering an endowment policy and moving to Capital Repayment
  • Cashing in an ISA
  • Using Pension Freedom
    + Very expensive if using taxed funds

Trading down
- Getting a cheaper property can be expensive with SDLT and other costs

  • Debt Consolidation
  • Renting out a room
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10
Q

State Assistance on Arrears - Support from Mortgage Interest (SMI)

A
  • Pays for some or all of the mortgage interest if the claimant has received certain benefits
  • Since April 2018 it’s counted as a 2nd charge loan
  • Only available to clients on income related, means tested benefits
  • Means tested for people not qualified through NIC’s but have too little savings & income
  • Covers loans up to £200k & can include extra borrowing after divorce or home improvement
  • Loans limited to £100k for pension credit
  • Pension credit claims are not subject to the 39 week waiting period
  • Only covers interest rate up to the loan limit
  • Doesn’t cover endowment or insurance
  • Calculated using the standard interest rate, not the mortgage rate paid by the borrower
  • Rate used is currently 1.5%, changes 6 weeks after BOE rate change
  • Interest is payable on the mortgage above this amount is paid by the borrower
  • Waiting period is 39 weeks
  • There is no time limit on receiving the benefit
  • Interest is paid directly to the lender
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11
Q

SMI Qualifying Benefits

A
  • Income support
  • Income based jobseekers allowance
  • Income related ESA
  • Pension Credit
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12
Q

SMI - 52 Week Linking Rule

A
  • If a claimant needs to reclaim within 52 weeks they can do so without the 39 week waiting period
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13
Q

SMI Interest Run On

A

If an SMI claimant starts a job lasting 5 weeks or more they can claim this to give another 4 weeks despite working

  • Must have been claiming for 26 weeks
  • Extra money towards the mortgage if other benefits stop because they are working
  • Must work 16 hours a week or less
  • Must have less than £16k in savings
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14
Q

Mortgage Rescue Scheme

A

This is where individuals ask organisations for help
There are 2 options

1) An organisation buys the property and rents it back to them
2) The borrower can sell an interest in the property leaving them in a shared ownership

Run by local councils, housing associations, mortgage lenders and private companies on a profit making basis

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15
Q

Sources of further advice

A

Free

  • Citizens Advice
  • Money advice centres - Local Authority Run
  • Step Change - Charity
  • Money advice service - Government

Payable
- Financial Advisors

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16
Q

Mortgage IVA

A
  • Involves rescheduling debt
  • Organised by licensed insolvency practitioner to liaise with creditors
  • IVA reduces some debt and involves freezing interest and charges
  • Some include an equity clause where a borrower is required to re-mortgage during the IVA to pay back some of the debt
    + when activated the clients equity must be more than £5k (£10k joint if they both have an IVA) after mortgage costs
    + re-mortgage cannot be more than 85% of the property value
    + extra cost of the re-mortgage can be deducted from the available amount
    + term cannot go into pension age or the existing ter, whichever is the latter
    + mortgage cost must be affordable & mustn’t exceed 50% of the IVA payment
    + the increase in payment is deducted from the available amount
    + if re-mortgaging is impossible the IVA supervisor can accept another sum equal to what would have been paid through re-mortgaging or extend the IVA term by another 12 months (this involves more payments)
17
Q

Legal Remedies on Default

A

Law of property act 1925 - remedies to repossess

  • Sue for possession
  • Exercise power of sale
  • Sue on personal covenant for recovery of debt
  • Appoint a receiver
  • Foreclosure - Rarely used in the UK
18
Q

Right to Sue for Possession & Exercising Power of Sale

A
  • Most common
  • Borrower is sued in county court
  • Possession order is granted and the property is sold
  • Court only grants this if the borrower has tried everything

The court can

  • Grant outright possession order - 28 days
  • Suspended possession order - the court outlines the payment schedule, if the client fails the final order if invoked
  • Adjournment or suspension to a later date
19
Q

Right to Sue on the Borrower Covenant

A
  • Lender can sue to recover money if the borrower has other assets
  • The client doesn’t usually have other assets
  • The lender sues for loss on sale if they think the client has other assets
  • The lender is not liable for any loss made on it’s power of sale
20
Q

Right to Appoint a Receiver

A
  • Where there is income from the property e.g. BTL
  • Money from the rent is applied to the mortgage account
  • The receiver collects the rent
  • If it’s an unauthorised tenancy the lender mustn’t formally recognise it as it will create an overriding interest on the property
21
Q

Foreclosure

A
  • Not used in the UK
  • The lender takes the property, resells it and keeps any profit
  • Deemed unfair, in the UK the lender can only take what is owed
22
Q

Repossession Sales Procedure

A
  • The lender seeks disposal on valuation ASAP
  • The client has the right to settle the debt in full anytime before the house is sold
  • The lender has a duty to get the best price
  • Any fixtures belong to the house sale and is passed to the lender

Nursing Property
- The lender sets a price and only sells once the price is reached or is very close no matter how long it takes.

Unit 6 - Arrears & Repossessions (2 decks)

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