FCA has published its thematic review of Mortgage Lenders' arrears management and forbearance
On 25 February 2014, the Financial Conduct Authority (FCA) published its thematic review of Mortgage Lenders’ arrears management and forbearance. The review considers whether firms have improved policies and practices since the Financial Services Authority (FSA), last reviewed the position. It summarises areas where firms can strengthen their practices so they are well placed to consistently treat customers in financial difficulty fairly.
The FCA found that arrears management in firms has improved since the last review but that mortgage Lenders and administrators need to place greater emphasis on delivering consistently fair outcomes for customers based on their individual circumstances.
The FCA is concerned about the risks to borrowers from potential interest rate rises. They want firms to take proactive steps to identify borrowers who may be susceptible to these risks and ensure that they have strategies to treat them fairly.
The FCA say that they are working with firms and industry bodies to explain their concerns and to help them strengthen arrears management practices. They also say that they have asked the firms that participated in the review, to make specific improvement.
A link to the review can be found here.
The CML welcomes formal publication of the mortgage credit directive
Following publication of the directive on credit agreements relating to residential property, in the Official Journal of the European Union on 28 February 2014, the UK, along with other EU member states, has two years to work toward implementation.
The CML's head of policy Jackie Bennett said: "Formal publication of the directive finally brings to an end a long period of uncertainty about what European proposals for regulating mortgages will look like. But that means the start of the next stage in the process for UK firms and consumers. Lenders are currently working flat out towards final implementation of new rules for regulating mortgages in the UK - due to come into effect on 26 April. Once the new UK rules are bedded in, however, firms will need to begin to prepare for any changes that might be needed to comply with European regulation. It will help everyone affected - consumers, as well as firms - for the process of public consultation by the Treasury and the FCA to begin as soon as possible."
Case law updates
Issuing a separate court claim after an award from the Financial Ombudsman Service
In Clark & Anor v In Focus Asset Management & Tax Solutions Ltd  EWCA Civ 118, the Court of Appeal found that where a complainant accepts a FOS decision or award concerning its complaint, the complainant cannot then sue for the remaining balance in Court (if the complaint to the FOS constitutes the same set of facts as the cause of action for the claim in Court). The complainant’s recovery will be limited to the accepted FOS award.
At first instance in this case, the High Court held that a complainant could sue for the outstanding damages over and above the award by the FOS. However, in a contrasting decision in Andrews v SBJ Benefit Consultants  EWHC 2875 (Ch), the High Court held that the complainant could not sue for the balance upon accepting the FOS’ decision.
The complainant’s recovery will be limited to the accepted FOS award.
There was a concern that if the High Court decision in Clark was upheld, this would encourage claimants to bring FOS claims and then subsequent Court proceedings, leading to financial institutions having to handle the same claims twice. This decision therefore brings welcome certainty and gives claimants a clear choice between FOS and the Courts as alternative routes to pursue claims.
The duty owed by a mortgagee when dealing with a mortgage application
In The Mortgage Business Plc v Green  EWCH 4148 (Ch) the Court held that the Lender was not affected by any undue influence there may have been, in relation to a remortgage transaction.
The Lender granted a loan to Mr and Mrs Green who were son and mother respectively. The loan was secured against the borrowers’ jointly owned property in Swindon. The Lender commenced proceedings for possession of the property due to the borrowers’ default. The son did not defend the action and played no part in the proceedings. The mother defended the claim on the grounds that she was unduly influenced to enter into the transaction by her son, that the Lender’s rights under the mortgage were affected by that undue influence and that she was entitled to have the mortgage set aside as against her.
The High Court did not need to make a finding as to whether Mrs Green was unduly influenced in the transaction because it held that there was nothing to make the Lender aware that Mrs Green was wholly or even substantially a surety for her son’s debts, the Lender was not put on inquiry as to undue influence by anything that came to their attention and were therefore unaffected by any undue influence there may have been.
The following useful points arise from the Judgment in this case:-
- The Court found that it was not significant that the mortgage file said there were 2 mortgage applicants but correspondence was only to go to one of them. It would not be unusual for one of two joint borrowers to take on the principal burden of communicating with the Lender.
- The test laid down by Lord Nicholls in Royal Bank of Scotland v Etridge (No 2)  2 AC 773 involves the Lender being put on inquiry where ‘it is aware’ that the advance is for the purposes of one borrower so that the other borrower is effectively only a surety. It is not necessary for the Lender to ‘play detective’ and to follow up any clue, however slight, which might indicate to them that the information provided was not scrupulously accurate. There is no requirement that it adopts a high level of prudence and scepticism.
- Information which comes to the solicitors jointly instructed by the Lender and borrowers, must come to the attention of the solicitors in their capacity as solicitors for the Lender.
- The submission that the brokers and mortgage packagers should be considered to be the agents of the Lender, and that information which the brokers and packagers had should be attributed to the Lender, was a hopeless submission. They were plainly the agents of the borrowers and not the agents of the Lender.
This decision confirms that a defence of undue influence will only succeed where a Lender is aware that one borrower is acting as surety for another borrower’s debts. In the case of a joint loan application to be secured on jointly owned property, this will be a large obstacle for a borrower to overcome.
Obtaining files from solicitors
In The Mortgage Business Plc v Oliver & Co the Court held that a clear and unambiguous term authorising a Lender to obtain a solicitor’s full file including documents which would otherwise be privileged, can be relied upon by the Lender.
Oliver & Co solicitors were instructed jointly by the Lender and borrowers, to act on their behalf in respect of a conveyancing transaction. The Lender sought delivery up of the solicitors’ complete file relating to the transaction including parts relating to the solicitors retainer with the borrowers and which contained documents subject to the borrowers’ privilege. The Lender relied upon its mortgage terms and conditions which contained a power of attorney clause and authorised the Lender to instruct anybody, such as a solicitors who had any documents, to let the Lender look at them and take copies.
The High Court found that the facts of this case were indistinguishable from those which arose in Mortgage Express v Sawali and that the mortgage terms which the Lender sought to rely on to recover the solicitor’s full file stopped any claim for legal professional privilege preventing access to the documents. The mortgage terms were unambiguous, clearly binding and remained so.
Where a Lender wishes to recover a solicitor’s file, producing a clearly worded clause which has been incorporated into the mortgage (and therefore agreed by the borrower) should enable you to recover the full file and defeat any argument by the solicitors that they cannot disclose the file as it is privileged. In light of this decision, a solicitors’ refusal to deliver up a file where such express contractual terms apply, might be grounds for seeking a costs order.
Equity of exoneration
In Day v Shaw  EWCH 36 (Ch) the High Court found that Mrs Shaw was entitled to an equity of exoneration from Mr Shaw even though this left Mr Day with no proceeds of sale against which his charging order could bite.
Mr and Mrs Shaw purchased a property in Weston-Super-Mare in 1964. In 2001, they charged the property to Cheltenham & Gloucester Plc and in 2002 they granted a second charge in favour of Barclays Bank. Mr Day subsequently obtained a charging order against Mr Shaw’s interest in the property.
The property was sold and the sums owing under the 2 charges were repaid from the sale proceeds leaving net proceeds of £45,276.62. Mrs Shaw contended that she was entitled to an equity of exoneration from Mr Shaw in relation to her liability under the second charge with the result that the Barclays charge should be repaid from Mr Shaw’s share in the property before any liability should fall on Mrs Shaw’s share in the property. This would entitle Mrs Shaw to claim the entire balance of £45,276.62 for herself and would leave nothing against which Mr Day’s charging order could bite.
According to Fisher and Lightwood’s Law of Mortgage 13th edition “A person who has mortgaged his property to secure the debt of another is presumed in the absence of other evidence to be only a surety and is entitled to be exonerated by the principal debtor. The same is true where jointly-owned property is mortgaged to secure money raised for the benefit of one joint owner”.
The Court found that Mr Shaw was liable to indemnify Mrs Shaw in respect of the sums owing to Barclays Bank and therefore that Mrs Shaw was entitled to an equity of exoneration from Mr Shaw.
A joint mortgagor cannot be exonerated from liability to repay the mortgage unless his/her co-mortgagor has a sufficient interest in the secured property to permit the mortgagee to be repaid out of the other mortgagor’s interest. Consequently, if the value of the property is such that it would not be possible for the loan to be repaid out of one mortgagor’s interest in the Property, the co-mortgagor cannot be exonerated. More importantly, the equity of exoneration cannot be used by a mortgagor against a mortgagee to avoid liability for the mortgage.