If you are, the Central Bank of Ireland’s Code of Conduct on Mortgage Arrears (“the Code”) sets out clearly a range of rules which your mortgage lender must follow when dealing with you. This Code came into effect on the 1st January 2011 and is applicable to anyone who is in arrears on their mortgage payments on their sole or main property. The Code is a reflection of the fact that Mortgage Arrears and the Handling of Mortgage Arrears is an ongoing top priority for the Central Bank of Ireland (“CBI”). Mortgages through a Credit Union are not covered by the Code.
Your lender must have procedures in place to deal with your situation and find an appropriate solution for your circumstances under the Mortgage Arrears Resolution Process (“MARP”). MARP is the process for dealing with customers in or at risk of mortgage arrears and each mortgage lender must have an information booklet that sets out its MARP which must be available on its website.
Essentially MARP is a 5 step process:
Step One Contact your mortgage lender immediately
Step Two Complete a Standard Financial Statement
Step Three Assessment of your financial situation
Step Four Seeking a resolution
Step Five Appealing a decision
Step One Contact your mortgage lender immediately
If you are behind with your mortgage repayments or feel you may shortly experience difficulties meeting your mortgage repayments your first step should be to contact your lender as soon as possible to discuss the situation. Discussing your mortgage repayment problems as early as possible will help in reaching a solution. Any delay in contacting your lender may result in your mortgage arrears situation becoming worse than it would have been otherwise. Your branch must have at least one specially trained person with specific responsibility for dealing with your situation who will conduct your meeting in private. Your lender must treat your case sympathetically. You have the right to nominate a third party to discuss the situation with your lender on your behalf such as MABS so long as you give your permission in writing.
How your lender must communicate with you.
If your mortgage is in arrears for 31 days, your lender must write to you of your mortgage account status within 3 business days. The letter must include the following:
- State the date that the mortgage fell into arrears, the amount of arrears in euros and the total amount of full or partial payments missed;
- Confirm that it is treating your case as a MARP case;
- Highlight the importance of you cooperating with your lender during the MARP process and notify you that, if co-operation stops, the protections of the MARP no longer apply and that the lender may start legal proceedings for repossession;
- Include a statement that fees, charges and penalty interest in relation to the arrears will apply where you do not co-operate with your lender.
It is important to note that apart from communications that your lender must give you there are limits on the number of communications your lender can make with you. The CBI is cognisant of the fact that unexpected and excessive contact from your lender can be stressful and the Code requires that such contact be proportionate and not excessive. Therefore the CBI limits the number of times your lender can contact you to 3 times in any calendar month, unless you have given prior informed consent to your lender contacting you. This includes contacts by phone, e mail, text, and letter or by calling to your home and includes missed calls or where messages are left for you.
Stage Two Complete a Standard Financial Statement (“SFS”)
Your lender will request you to complete a Standard Financial Statement (SFS) on your current income, expenses and liabilities prior to making its decision on whether to offer you an alternative repayment arrangement. The function of this document is to gather all your financial information to assist the lender assess your financial situation. It is important that you cooperate with all requests for documentation as if you do not, you could be classified as not cooperating and a 12 month waiting period (moratorium) for commencing legal action for repossession of the property will no longer apply to you. (Please refer below to paragraph on repossession).
Stage Three Assessment of your financial situation
Your completed SFS will be assessed by the Arrears Support Unit (ASU) who will determine whether or not to offer you an alternative repayment arrangement. Lenders will usually consider your personal circumstances, your personal debt, information you provided in the SFS, your ability to make repayments, your previous repayment history and other relevant information.
Step Four Seeking a resolution
After assessing your situation, your lender will determine whether your mortgage should be re-scheduled and what alternative repayment arrangement is appropriate. Where you are offered an alternative repayment arrangement your lender must give you a clear explanation of the proposed arrangement and any implications for you.
Alternative repayment arrangements that your lender may consider include:
- Interest-only arrangement for a set period of time – the balance of the outstanding capital amount would remain unchanged for the interest-only period.
- Extending the mortgage term – your monthly repayments will be lower, however, you will be subject to more interest as the mortgage will be payable over a longer period of time.
- Capitalising the arrears and interest – you are experiencing difficulties in paying off the arrears, the lender may agree to collect them over the balance of the mortgage term.
- Voluntary scheme your lender has signed up to – if, for example, your lender has signed up to a Deferred Interest Scheme, your lender may consider allowing you to defer paying up to 34% of the interest on your mortgage for a period of time. However, you must pay what you can afford and there is no additional interest charged on this unpaid interest during the set period.
It is important to note that interest will accrue on any arrears you owe but your lender cannot charge you additional interest just because you are in arrears.
In practice most lenders agree an alternative arrangement if you cooperate with them. However, your lender is not obliged to offer you such alternative repayment arrangements. If your lender refuses to offer you such an arrangement, the reasons for refusing to do so must be given to you in writing together with your right to appeal to the lenders Appeal Board and your lender must discuss other options with you including, for example:
- Voluntary Surrender – this would mean that you agree with your lender that they can take full legal ownership of the property. However, you will remain liable for any amounts that you owe to your lender and which they do not recover from the sale of the property.
- Trading Down – this would mean selling your property and buying a cheaper one which would result in more affordable monthly mortgage repayments. You need to be sure that that you have sufficient funds from the sale to buy another property, after paying off the current mortgage and taking into account stamp duty, solicitor’s fees, auctioneers fees etc.
- Voluntary Sale – this means that you will only receive monies in excess to the amount owed to your lender as your lender is entitled to recover the mortgage balance and legitimate charges from the sale.
If, for example, your mortgage is €300,000 and your house is sold for €250,000, you will still owe your lender €50,000.
Where an alternative repayment arrangement has not been put in place, or if you do not pay some or all of three mortgage payments, your lender must notify you in writing of the following:
- Potential for legal proceedings for repossession of the property together with an estimate of the costs to you of such proceedings;
- Importance of taking independent advice;
- Regardless of how the property is reposed and disposed of, that you will remain liable for the outstanding debt, including accrued interest, charges, legals and other related costs, where applicable.
Remember, if you do not enter the arrangement offered and if you do appeal your lender’s decision, the time taken by your lender’s Appeals Board to consider your appeal is not included in the 12-month waiting period. However, if you decide not to appeal the 12-month waiting period on the lender taking legal action against you no longer applies.
Step Five Appealing a decision
Your lender will have an internal Appeals Board where you can appeal on any of the following grounds:
- Your lenders’ decision on your case; and/or
- How your lender treated you under the MARP process; and/or
- Whether you feel your lender has not complied with any of the requirements under the Code.
You will have 20 business days following the lender’s decision to submit an appeal to your lender’s Appeals Board. If you are unhappy with the outcome of the appeal you can make a complaint to the Financial Services Ombudsman, however, you must exhaust your lenders complaints process first.
Lenders can repossess homes after exhausting every way possible to solve the problem. Repossessions are not altogether common, for example, there are around 800,000 mortgages in Ireland and in 2010 only 300 homes were repossessed by court order. Your lender cannot apply to the courts to commence legal action for repossession of your property until every reasonable effort has been made to agree an alternative arrangement with you. Where you are co-operating with your lender, the lender must wait at least 12 months from the date you are classified by your lender as being under MARP (i.e. day 31 from when arrears first arose), before applying to the courts to start legal action for repossession.
Important points to be aware of
- Cooperate with your lender in relation to your mortgage arrears as if you do not you are not protected by the 12 month waiting period under MARP before your lender can commence legal action for repossession of your primary residence.
- Your lender cannot contact you more than 3 times per month in relation to your mortgage payments unless you have given your lender prior permission.
- If you agree an alternative repayment arrangement with your lender and continue to meet that alternative arrangement, your lender cannot start legal proceedings against you and your lender cannot impose any charges on your mortgage account relating to your arrears.
- Your lender cannot move you from an existing tracker mortgage to another mortgage type as part of an alternative arrangement offered to you or just because you are in arrears.
- Your lender can only consider repossession after they have considered carefully every other way of solving your problem and have made every reasonable effort to agree an alternative repayment arrangement with you.
- If your property is repossessed and the proceeds of the sale do not redeem the mortgage in full, you will remain liable for any outstanding debt, including any accrued interest, charges, legal, selling and other related costs if this is the case.
- Your credit rating may be affected if you have an overdue balance on your mortgage account or if your home has been repossessed.
Joan is Legal and Compliance Officer at Quintas Wealth Management
“The views expressed in this article are not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.