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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.

10.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.

11.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.

12.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.

P O S S E S S I O N

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 the borrower without notifying the lender. In cases where a borrower has failed to discuss his mortgage arrears problems with the lender,

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C M L / G O V E R N M E N T S T A T E M E N T O N A R R E A R S A N D P O S S E S S I O N P R O C ED U R ES

16. In December 1991, after detailed discussions with the government, the CML reaffirmed that it is the policy of lenders to take possession only as a last resort, and to handle arrears problems efficiently and sympathetically. A formal announcement was made by the Chancellor of the Exchequer in the House of Commons and at a CML Press Conference on 19 December 1991. The announcement referred to the fact that:

(a)Where borrowers have suffered a significant reduction in their income but are making a reasonable regular payment, lenders do not seek to take possession.

(b)In the knowledge that income support will in future be paid direct, lenders will not take possession in cases where mortgage interest payments are covered by income support.

17.From October 1995, income support has been paid by the Department of Social Security at a ‘standard rate’ of interest, which may be less than the interest rate charged by the lender. Borrowers will need to make up any shortfall in the mortgage repayment. Some lenders have decided not to participate in the direct payment scheme. In these cases, the borrower will be responsible for passing on the income support for mortgage interest payment to their lender.

S A L E O F P R O P E R T I E S I N P O S S E S S I O N

18. When selling properties which have been taken into possession lenders are under a duty to obtain the best price reasonably obtainable. A lender is not bound to postpone the sale in the hope of obtaining a better price at some future date; however, the lender should allow sufficient time to permit, for example, proper advertising so that the best price obtainable may be achieved. Mortgage lenders generally use the following administrative procedures for selling properties which have been taken into possession:

(a)Administration. The sale may be dealt with either via a lender’s in-house department or through a separate property management company employed by the mortgage lender. Dedicated staff are responsible for co-ordinating the sale of properties in possession which will include reviewing the offers received from potential purchasers as well as monitoring the condition of these properties and their valuation.

(b)Valuation. A valuation of the property is obtained from either one or two qualified surveyors and another from the appointed estate agent. Prices are usually reviewed every three to four months and more often when the circumstances justify a revaluation.

(c)Estate agents. Properties are usually marketed through an estate agent in the immediate locality of the property being sold. Agents may advertise properties in the local press, with such advertisements being repeated as and when necessary. Mailshots and national advertising may also be carried out in some cases. In general, lenders do not market these properties as ‘repossessed properties’; in many cases estate agents are specifically instructed not to do so.

(d)Report on activity. Estate agents are usually required to report on activity every four to six weeks if a property remains unsold. The estate agent will notify a mortgage lender