Arrears and repossessions: regulated mortgage contracts and home purchase plans

Part

MCOB Mortgages and Home Finance: Conduct of Business sourcebook

Chapter

Arrears and repossessions: regulated mortgage contracts and home purchase plans

Printed on: 08/12/2024

Rulebook at: 25/06/2010

MCOB 13

Arrears and repossessions: regulated mortgage contracts and home purchase plans

MCOB 13.1

Application

01/12/2004

Who?

MCOB 13.1.1

This chapter applies to a firm in a category listed in column (1) of the table in MCOB 13.1.2 R in accordance with column (2) of that table.

31/10/2004

MCOB 13.1.2

Table: This table belongs to MCOB 13.1.1 R

(1) Category of firm

(2) Applicable section

mortgage lender, and a firm that was a mortgage lender before the sale of a repossessed property

MCOB 13.1 - MCOB 13.3, except for MCOB 13.3.9 R to MCOB 13.3.11 G

mortgage administrator, and a firm that was a mortgage administrator before the sale of a repossessed property

whole chapter except for MCOB 13.8

home purchase provider, and a firm that was a home purchase provider before the sale of a repossessed property

As for a mortgage lender

home purchase administrator, and a firm that was a home purchase administrator before the sale of a repossessed property

As for a mortgage lender, plus: MCOB 13.6 and MCOB 13.8; and MCOB 13.4 and MCOB 13.5 in accordance with MCOB 13.8

06/04/2007

What?

MCOB 13.1.3

This chapter applies with respect to administering a regulated mortgage contract, administering a home purchase plan and administering a sale shortfall.

06/04/2007

MCOB 13.1.4

The requirements in this chapter will continue to apply to a firm after a regulated mortgage contract or home purchase plan has come to an end following the sale of a repossessed property. References in this chapter to "customer" will include references to a former customer as appropriate.

06/04/2007

MCOB 13.1.5

The FSA expects a firm to treat a sale shortfall in the same way that it treats a payment shortfall.

06/04/2007

MCOB 13.1.6

A firm may have entered into a mix of regulated mortgage contracts and non-regulated mortgage contracts with a customer secured on the same property. In such circumstances, if the regulated mortgage contract is in arrears, notwithstanding that the overall position in respect of the mortgages generally is not in arrears, the firm will need to comply with all the requirements of MCOB 13 in respect to the regulated mortgage contract. Where this involves providing the customer with information, a firm should explain, if it is the case, that whilst the overall position on the mortgages is not in arrears, no action will be taken in respect of the regulated mortgage contract.

31/10/2004

MCOB 13.1.7

If a firm has entered into more than one regulated mortgage contract or home purchase plan with the same customer relating to the same property, the firm may treat them all as one for the purposes of this chapter.

06/04/2007

MCOB 13.2

Purpose

01/12/2004

MCOB 13.2.1

This chapter amplifies Principle 6 in respect of the information and service provided to customers who have payment difficulties or face a sale shortfall.

06/04/2007

MCOB 13.2.2

There may be occasions where a customer enters into a regulated mortgage contract or home purchase plan with no intention of meeting his payment obligations. Where the intention is to defraud, this chapter does not prevent early action to recover sums due.

06/04/2007

MCOB 13.3

Dealing fairly with customers in arrears: policy and procedures

01/12/2004

MCOB 13.3.1

(1) A firm must deal fairly with any customer who:

(a) is in arrears on a regulated mortgage contract or home purchase plan;
(b) has a sale shortfall; or
(c) is otherwise in breach of a home purchase plan.

(2) A firm must put in place, and operate in accordance with, a written policy (agreed by its respective governing body) and procedures for complying with (1). Such policy and procedures must reflect the requirements of MCOB 13.3.2A R and MCOB 13.3.4A R.

25/06/2010

MCOB 13.3.2

(1) [deleted]
(2) [deleted]

25/06/2010

MCOB 13.3.2A

A firm must, when dealing with any customer in payment difficulties:

(1) make reasonable efforts to reach an agreement with a customer over the method of repaying any payment shortfall or sale shortfall, in the case of the former having regard to the desirability of agreeing with the customer an alternative to taking possession of the property;
(2) liaise, if the customer makes arrangements for this, with a third party source of advice regarding the payment shortfall or sale shortfall;
(3) allow a reasonable time over which the payment shortfall or sale shortfall should be repaid, having particular regard to the need to establish, where feasible, a payment plan which is practical in terms of the circumstances of the customer;
(4) grant, unless it has good reason not to do so, a customer's request for a change to:

(a) the date on which the payment is due (providing it is within the same payment period); or
(b) the method by which payment is made;

and give the customer a written explanation of its reasons if it refuses the request;
(5) where no reasonable payment arrangement can be made, allow the customer to remain in possession for a reasonable period to effect a sale; and
(6) not repossess the property unless all other reasonable attempts to resolve the position have failed.

25/06/2010

MCOB 13.3.3

The requirement in MCOB 13.3.1 R(2) for a written policy and procedures is intended to ensure that a firm has addressed the need for internal systems to deal fairly with any customer in financial difficulties. MCOB 13.3.1 R(2) does not oblige a firm to provide customers with a copy of the written policy and procedures. Nor, however, does it prevent a firm from providing customers with either these documents or a more customer-orientated version.

31/10/2004

MCOB 13.3.3A

In complying with MCOB 13.3.2A R, a firm must give a customer a reasonable period of time to consider any proposals for dealing with the payment difficulties.

25/06/2010

MCOB 13.3.4

(1) [deleted]
(2) [deleted]

25/06/2010

MCOB 13.3.4A

In complying with MCOB 13.3.2AR(6):

(1) a firm must consider whether, given the individual circumstances of the customer, it is appropriate to do one or more of the following in relation to the regulated mortgage contract or home purchase plan with the agreement of the customer:

(a) extend its term; or
(b) change its type; or
(c) defer payment of interest due on the regulated mortgage contract or of sums due under the home purchase plan (including, in either case, on any sale shortfall); or
(d) treat the payment shortfall as if it was part of the original amount provided (but a firm must not automatically capitalise a payment shortfall); or
(e) make use of any Government forbearance initiatives in which the firm chooses to participate;

(2) a firm must give customers adequate information to understand the implications of any proposed arrangement; one approach may be to provide information on the new terms in line with the annual statement provisions.

25/06/2010

MCOB 13.3.4B

A firm must make customers aware of the existence of any applicable Government schemes to assist borrowers in payment difficulties in relation to regulated mortgage contracts.

25/06/2010

MCOB 13.3.4C

Firms should note that the list of options to consider set out at MCOB 13.3.4AR(1) is not exhaustive. The FSA would expect firms to be able to justify a decision to offer a particular option.

25/06/2010

MCOB 13.3.4D

In the FSA's view, in order to comply with Principle 6, firms should not agree to capitalise a payment shortfall save where no other option is realistically available to assist the customer.

25/06/2010

MCOB 13.3.5

In relation to using reasonable efforts to reach an agreement with a customer over the method of repaying any payment shortfall or sale shortfall, a mortgage lender should not automatically capitalise arrears.

06/04/2007

MCOB 13.3.6

In relation to adopting a reasonable approach to the time over which the payment shortfall or sale shortfall should be repaid, the FSA takes the view that the determination of a reasonable repayment period will depend upon the individual circumstances. In appropriate cases this will mean that repayments are arranged over the remaining term.

06/04/2007

MCOB 13.3.7

In relation to granting a customer's request for a change to the payment date, a term that purported to allow a firm to change the payment date unilaterally might in any event contravene the Unfair Terms Regulations.

06/04/2007

MCOB 13.3.8

Firms that propose to outsource aspects of customer relationships (including collection of debts or any other sums due) should note that and SYSC 8, a firm cannot contract out its regulatory obligations and the FSA will continue to hold them responsible for the way in which this work is carried on.

06/04/2007

Record keeping: arrears and repossessions

MCOB 13.3.9

(1) A mortgage lender or administrator must make and retain an adequate record of its dealings with a customer whose account is in arrears or who has a sale shortfall, which will enable the firm to show its compliance with this chapter. That record must include a recording of all telephone conversations between the firm and the customer which discuss the sums due.
(2) A mortgage lender or administrator must retain the record required by (1) for three years from the date of the dealing.

25/06/2010

MCOB 13.3.10

The record referred to in MCOB 13.3.9 R should contain, or provide reference to, matters such as:

(1) the date of first communication with the customer after the account was identified as being in arrears;
(2) in relation to correspondence issued to a customer in arrears, the name and contact number of the employee dealing with that correspondence, where known;
(3) the basis for issuing tailored information in accordance with MCOB 13.7.1 R;
(4) information relating to any new payment arrangements proposed;
(5) the date of issue of any legal documents;
(6) the arrangements made for sale after the repossession (whether legal or voluntary); and
(7) the date of any communication summarising the customer's outstanding debt after sale of the repossessed property;
(8) the date and time of each call for the purposes of MCOB 13.3.9R(1).

25/06/2010

MCOB 13.3.11

For details of the standard expected of firms in relation to maintaining records, see MCOB 2.8 (Record keeping)

31/10/2004

MCOB 13.4

Arrears: provision of information to the customer of a regulated mortgage contract

06/04/2007

MCOB 13.4.1

If a customer falls into arrears on a regulated mortgage contract, a firm must as soon as possible, and in any event within 15 business days of becoming aware of that fact, provide the customer with the following in a durable medium:

(1) the current FSA information sheet on mortgage arrears;
(2) a list of the due payments either missed or only paid in part;
(3) the total sum of the payment shortfall;
(4) the charges incurred as a result of the payment shortfall;
(5) the total outstanding debt, excluding charges that may be added on redemption; and
(6) an indication of the nature (and where possible the level) of charges the customer is likely to incur unless the payment shortfall is cleared.

31/10/2004

MCOB 13.4.2

(1) The current FSA information sheet on mortgage arrears is available on the FSA website, www.fsa.gov.uk; copies can also be obtained from the FSA.
(2) In the event of the FSA making any changes to the information sheet, at least three months' notice of the changes will be given on the FSA website.

31/10/2004

MCOB 13.4.3

(1) A firm may provide the information in MCOB 13.4.1 R (2), (3), (4), (5) and (6) orally, for example, by telephone, but must provide the information in a durable medium with a copy of the FSA information sheet on mortgage arrears within 15 business days of becoming aware of the customer's account falling into arrears.
(2) Where a firm provides the information in MCOB 13.4.1 R when a payment shortfall occurs but before the customer's account falls into arrears, it need not repeat the provision of the information in MCOB 13.4.1 R when the customer's account falls into arrears.

31/10/2004

Customers in arrears within the past 12 months

MCOB 13.4.4

If a customer's account has previously fallen into arrears within the past 12 months (and at that time the customer received the disclosure required by MCOB 13.4.1 R), the arrears have been cleared and the customer's account falls into arrears on a subsequent occasion a firm must either:

(1) issue a further disclosure in compliance with MCOB 13.4.1 R; or
(2) provide a statement, in a durable medium, of the payments due, the actual payment shortfall, any charges incurred and the total outstanding debt excluding any charges that may be added on redemption, together with information as to the consequences, including repossession, if the payment shortfall is not cleared.

31/10/2004

Steps required before action for repossession

MCOB 13.4.5

Before commencing action for repossession, a firm must:

(1) provide a written update of the information required by MCOB 13.4.1 R(2), (3), (4), (5) and (6);
(2) ensure that the customer is informed of the need to contact the local authority to establish whether the customer is eligible for local authority housing after his property is repossessed; and
(3) clearly state the action that will be taken with regard to repossession.

31/10/2004

MCOB 13.5

Dealing with a customer in arrears or with a sale shortfall on a regulated mortgage contract

06/04/2007

Statements of charges

MCOB 13.5.1

Where an account is in arrears, and the payment shortfall or sale shortfall is attracting charges, a firm must provide the customer with a regular written statement (at least once a quarter) of the payments due, the actual payment shortfall, the charges incurred and the debt.

06/04/2008

MCOB 13.5.2

(1) For the purpose of MCOB 13.5.1 R, charges that trigger the requirement for regular statements include all charges and fees levied directly as a result of the account falling into arrears. This includes charges such as monthly administrative charges, legal fees and interest. If interest is applied to the amount of the arrears, as it is applied to the rest of the mortgage, a firm need not send a written statement, unless other charges are also being made. If interest is applied to the amount of the arrears in a different manner to the rest of the mortgage then a written statement will be required.
(2) In determining the frequency for providing statements in accordance with MCOB 13.5.1 R, a firm should have regard to the application of new charges and the number of transactions on the customer's account.
(3) If an account in arrears is subject to a payment plan agreed between a firm and a customer, and the account is operating in accordance with that plan, the firm will still need to send the customer a written statement if the payment shortfall or sale shortfall is attracting charges.
(4) Information provided should cover the period since the last statement. Firms may use the annual statement to comply with MCOB 13.5.1 R, in which case the annual statement will need to be supplemented to include the actual payment shortfall.

06/04/2007

Pressure on customers

MCOB 13.5.3

A firm must not put pressure on a customer through excessive telephone calls or correspondence, or by contact at an unreasonable hour.

31/10/2004

MCOB 13.5.4

In MCOB 13.5.3 R, a reasonable hour will usually fall between 8 am and 9 pm. Firms should also have regard to the circumstances of the customer and any knowledge they have of the customer's work pattern or religious faith which might make it unreasonable to contact the customer during these hours.

31/10/2004

MCOB 13.5.5

In MCOB 13.5.3 R, putting pressure on a customer includes:

(1) the use of documents which resemble a court summons or other official document, or are intended to lead the customer to believe that they come from or have the authority of a court (which might in any event constitute a criminal offence under the County Courts Act 1984 or section 40 of The Administration of Justice Act 1970); and
(2) the use of documents containing unfair, unclear or misleading information intended to coerce the customer into paying. A firm should also have regard to Section 1 of the Malicious Communications Act 1988 which establishes a criminal offence in respect of letters sent which convey a threat or false information with intent to cause distress or anxiety.

31/10/2004

MCOB 13.5.6

In relation to MCOB 13.5.3 R, a firm should also have regard to the general law, including the Data Protection Act 1998, on the disclosure of information to third parties.

31/10/2004

MCOB 13.6

Repossessions

01/12/2004

MCOB 13.6.1

A firm must ensure that, whenever a property is repossessed (whether voluntarily or through legal action) and it administers the regulated mortgage contract or home purchase plan in respect of that property, steps are taken to:

(1) market the property for sale as soon as possible; and
(2) obtain the best price that might reasonably be paid, taking account of factors such as market conditions as well as the continuing increase in the amount owed by the customer.

06/04/2007

MCOB 13.6.2

In MCOB 13.6.1 R it is recognised that a balance has to be struck between the need to sell the property as soon as possible, to reduce or remove the outstanding debt, and other factors which may prompt the delay of the sale. These might include market conditions (explicitly referred to in MCOB 13.6.1 R(2)) but there may be other legitimate reasons for deferring action. This could include the expiry of a period when a grant is repayable on re-sale, or the discovery of a title defect that needs to be remedied if the optimal selling price is to be achieved.

31/10/2004

If the proceeds of sale are less than the amount due

MCOB 13.6.3

A firm must ensure that, as soon as possible after the sale of a repossessed property, if the proceeds of sale are less than the amount due under the regulated mortgage contract or home purchase plan, the customer is informed in a durable medium of:

(1) the sale shortfall; and
(2) where relevant, the fact that the sale shortfall may be pursued by another company (for example, a mortgage indemnity insurer).

06/04/2007

MCOB 13.6.4

(1) If the decision is made to recover the sale shortfall, the firm must ensure that the customer is notified of this intention.
(2) The notification referred to in (1) must take place within five years of the date of the sale (if the regulated mortgage contract or home purchase plan is subject to Scottish law) or within six years (in all other cases).

06/04/2007

MCOB 13.6.5

A firm is not required to recover a sale shortfall. A firm may not wish to recover the sale shortfall in some situations, for example where the sums involved make action for recovery unviable.

06/04/2007

If the proceeds of sale are more than the amount due

MCOB 13.6.6

A firm must ensure that, on the sale of a repossessed property, if the proceeds of sale are more than the amount due under the regulated mortgage contract or home purchase plan, reasonable steps are taken, as soon as possible after the sale, to inform the customer in a durable medium of the surplus and, subject to the rights of any subsequent mortgage or charge holders, to pay it to him.

06/04/2007

MCOB 13.7

Business loans

01/12/2004

MCOB 13.7.1

Where the regulated mortgage contract is for a business purpose, a firm may as an alternative to MCOB 13.4.1 R(1) provide the following information in a durable medium instead of the FSA information sheet on mortgage arrears:

(1) details of the consequences if the payment shortfall is not cleared;
(2) a description of the options available to the customer for clearing the payment shortfall; and
(3) details of sources of fee-free advice for business customers.

31/10/2004

MCOB 13.7.2

Firms are reminded that in accordance with MCOB 1.2.3R, they should either comply in full with MCOB or comply with all tailored provisions in MCOB that relate to business loans. Therefore, a firm may only follow the tailored provisions in MCOB 13.7, if it also follows all other tailored provisions in MCOB.

31/10/2004

MCOB 13.8

Home purchase plans

06/04/2007

Dealing fairly with customers in arrears: policy and procedures
Note: The rules on establishing and applying a policy and procedures for dealing fairly with customers in arrears apply (see MCOB 13.3).

06/04/2007

Arrears: provision of information to the customer

MCOB 13.8.1

If a customer falls into arrears, a firm must provide the customer with adequate information about the arrears in a durable medium:

(1) as soon as practicable after becoming aware of that fact;
(2) at quarterly intervals; and
(3) before commencing action for repossession.

06/04/2007

MCOB 13.8.2

A firm may want to refer to the provisions on the information to be provided to a mortgage customer in relation to arrears for guidance (see MCOB 13.4 and MCOB 13.5).
Repossessions
Note: The rules regarding repossessions apply (see MCOB 13.6).

06/04/2007