The Levying of Charges on Accounts in Arrear

In recent years, lenders have developed effective administrative and forbearance procedures to deal with cases where the borrower is unable to meet the mortgage repayments in full. A great deal of time and resources has been devoted to ensuring that these procedures operate to assist defaulting borrowers remain in their homes. Taking into account the additional costs which might be incurred in administering accounts in arrear, lenders may levy a fee on the borrower's account to meet a proportion of these costs.

However, lenders also recognise the difficulties facing borrowers who are experiencing problems in meeting their mortgage repayments. If a fee is levied on an account, it usually represents the reasonable cost of the additional administration required. When fees are charged, these may be on either a monthly or quarterly basis. Alternatively, lenders may charge only where certain administrative procedures have been carried out, for example, a home visit by a money adviser (employed by the lender) or where legal proceedings have been initiated.

In practice, lenders advise borrowers of any fees which might be charged either prior to the fee being levied or, when the fee is in respect of services, prior to the services being provided. Lenders may also advise borrowers when they take out a mortgage that fees may be charged to the account if it falls into arrear. Information on any fees is usually incorporated in mortgage documentation or published tariffs.

In many cases where borrowers are experiencing difficulties in meeting their mortgage repayments, an alternative payment arrangement may be reached between the lender and the borrower. If an alternative payment has been agreed, and is being adhered to by the borrower, lenders may either cease levying a fee on the account or continue to charge fees until the account has been brought up to date.

Possession

Methods of Obtaining Possession

13. Possession of a property will be sought only as a last resort when all attempts to reach alternative arrangements with the borrower have been unsuccessful. A lender may obtain possession of a property in three ways

(a) By Court Order

When pursuing possession proceedings through the courts, lenders must adhere to all the legal requirements and procedures to enforce their security, a number of which give considerable protection to the borrower. Proceedings may be suspended should the court consider that a borrower may be able, within a reasonable time period, to pay any sums due under the mortgage. The execution of the possession order may be postponed for a time to allow the borrower to secure alternative accommodation.

(b) By Voluntary Agreement with the Lender

A borrower who has fallen into arrears and who has little prospect of repaying such arrears may reach an agreement with his lender to hand over the property to the lender without the need to obtain a court order. A borrower may also be asked to sign a voluntary possession declaration to confirm the agreement, which would make it clear that mortgage interest together with other charges will continue to accrue until the property is sold. A voluntary surrender may result in an earlier sale of the property than would be the case with court proceedings.

(c) Surrender (or Abandonment) by Borrower without Notifying the Lender

In cases where a borrower has failed to discuss his mortgage arrears problems with the lender, or where suitable arrangements have not been reached between the lender and borrower, a borrower may simply vacate the property without advising the lender; often keys are sent to the lender, this being possibly the first intimation that the property has been surrendered. In such circumstances, the property would be sold by the lender. Again the borrower is liable for the total debt including mortgage interest which accrues until the property is sold. Irrespective of how the property is taken into possession, the borrower will remain liable for the outstanding debt including any accrued interest and charges between the date of possession and the date of sale.

In some cases borrowers who have had their properties taken into possession may seek a mortgage on another property. Potential borrowers should not conceal the fact that they have defaulted on a previous loan. The subsequent lender will be aware of the previous mortgage either as a result of enquiries of the original

lender or the CML Mortgage Possessions Register which lists borrowers who have had their properties taken into possession.

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