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

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.

If a firm has entered into more than one regulated mortgage contract or home purchase plan1with the same customer relating to1the same property, the firm may treat them1 all as one for the purposes of this chapter1.

This chapter amplifies Principle 6 1in respect of the information and service provided to customers who have payment difficulties or face a sale shortfall1.

There may be occasions where a customer enters into a regulated mortgage contract or home purchase plan1 with no intention of meeting his payment obligations. Where the intention is to defraud, this chapter does not prevent early action to recover sums due1.

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.

In relation to using reasonable efforts to reach an agreement with a customer over the method of repaying any payment shortfall or sale shortfall1, customers:

1. (1)

   should be given a reasonable period of time to consider any proposals for payment that are put to them; in addition, and depending on the individual circumstances, a firm may wish to do one or more of the following in relation to the regulated mortgage contract or home purchase plan1 with the agreement of the customer:

   1. (a)

      extend its term1; or

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   2. (b)

      change its type1; or

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   3. (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)1; or

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   4. (d)

      treat the payment shortfall as if it was part of the original amount provided1;

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2. (2)

   should be given 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 provisions1.

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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 lender1 should not automatically capitalise arrears.

In relation to adopting a reasonable approach to the time over which the payment shortfall or sale shortfall should be repaid,1the 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.

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.

Firms that propose to outsource aspects of customer relationships (including collection of debts or any other sums due1) should note that and SYSC 8,2 a firm cannot contract out its regulatory obligations and1 the FSA will continue to hold them responsible for the way in which this work is carried on.

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

1. (1)

   the date of first communication with the customer after the account was identified as being in arrears;

2. (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. (3)

   the basis for issuing tailored information in accordance with MCOB 13.7.1 R;

4. (4)

   information relating to any new payment arrangements proposed;

5. (5)

   the date of issue of any legal documents;

6. (6)

   the arrangements made for sale after the repossession (whether legal or voluntary); and

7. (7)

   the date of any communication summarising the customer's outstanding debt after sale of the repossessed property.

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

1. (1)

   The current FSA information sheet on mortgage arrearsis available on the FSA website, www.fsa.gov.uk; copies can also be obtained from the FSA.

2. (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.

1. (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 arrearswithin 15 business days of becoming aware of the customer's account falling into arrears.

2. (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.

1. (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. (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. (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.

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4. (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.

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.

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

1. (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. (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.

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.

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.

A firm is not required 1to recover a sale shortfall.1 A firm may not wish to recover the sale shortfall1in some situations, for example where the sums involved make action for recovery unviable.

1 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.

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).