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At LCollect we believe that knowledge is power. Every month our debt collection blog gives you practical tips, stories and news from around Australia and the world.

25% of Buyers Don't Understand LMI

Wednesday, May 30, 2018 - Posted by Michael McCulloch

A recent survey conducted by Mortgage Choice has shown that 25% of buyers do not understand what Lenders Mortgage Insurance (LMI) is.

Out of the 1,000 people who took part in the survey 8% thought that LMI protected them with almost 18% thinking that it protected both them and the lender. Buyers in the age bracket of 18-29 were the most likely not to know what LMI was with a higher proportion of women (45%) not knowing what LMI is versus 37% of men.

On a State by State comparison, Victoria had the highest proportion of buyers who did not know what LMI was (46%) followed by Queensland (40%), Western Australia (39.6%) with NSW the most knowledgeable State coming in at 34.6%

CEO for Mortgage Choice, Susan Mitchell, said in a statement, "For many first home buyers, LMI is likely to be a cost they have to pay to get into the property market, particularly if they do not have a deposit that is at least 20% of the purchase price. The reality is that saving for a home deposit is a major challenge for first home buyers and this has been the result of strong price growth over the last few years."

Ms Mitchell went on to say that it was concerning that a large proportion of Australians had either a limited or no understanding of LMI and that lenders should take an active role in educating borrowers.

For a detailed explanation as to what LMI is visit the Lenders Mortgage Insurance entry on Wikipedia.


FOS Approach to Early Release of Superannuation

Wednesday, April 26, 2017 - Posted by Michael McCulloch

As you may be aware the Financial Ombudsman Service ("FOS") periodically release and update documents to assist both consumers and Financial Service Providers ("FSPs") in how they come to the decisions that they do.

This month we have reviewed and re-produced an extract from the FOS Approach to Early Release of Superannuation which you can read below:

2.1 Grounds for Early Release of Superannuation
There are limited circumstances in which a person may apply for their superannuation to be released early to help meet their loan obligations. These are:

Severe Financial Hardship
A person who has received an eligible government support payment continuously for 26 weeks may be entitled to an early release of superannuation on the grounds of several financial hardship. On this basis, a person may access up to $10,000 once a year. To do so, they must obtain a supporting letter from DHS and then apply directly to their superannuation fund. The payment can be used for any purpose and the FSP's support is not required.

Compassionate Grounds for Mortgage Assistance
A person can apply for early release of superannuation on specific compassionate grounds. One of these is mortgage assistance to prevent the foreclosure of a mortgage, or the exercise of a mortgagee's power of sale over the person's principle place of residence. This process is administered by DHS. Foreclosure is rate, so this article focuses on the power of sale.
DHS may approve the release only if the borrower provides a written statement from the mortgagee that:

  • A payment of an amount is overdue; and
  • If the person fails to pay the amount, the mortgagee will:
    Foreclose the mortgage on the person's principle place of residence or
    Exercise its power of sale of the person's principle place of residence.

A limit applies such that in each 12 month period, DHS may approve the release of an amount of a person's preserved benefits in a superannuation entity only where that amount does not exceed 3 months of repayments plus 12 months' interest on the outstanding loan balance.
An amount released on the compassion grounds of mortgage assistance is taxed as a normal superannuation lump sum, which means there will often be tax implications for the borrower.

2.2 What FOS Expects of FSPs
We expect FSPs to genuinely consider requests for financial difficulty assistance. Wven where a borrower is asking only that the FSP support the request for release, the FSP must be willing to consider alternatives. This is because supporting a release is an option of last resort - in many cases more appropriate options may be available if the parties work together.
To meet its financial difficulty obligations, we expect an FSP to:
  • Take appropriate steps to understand the borrower's financial position, and how their position may change in the future
  • Consider the borrower's request as well as any reasonable alternatives that may help the borrower
  • Decide what assistance it will provide to help the borrower (this decision should be reasonable and based on legitimate considerations)
  • Communicate its decision to the borrower and, if it declines the borrower's request, provide reasons.

An FSP following the above guidance should consistently meet its obligations.

2.3 Factors for FSPs to Consider
When considering whether to support a borrower's request for early release of superannuation:
  • FSPs cannot insist that a borrower apply for early release of superannuation to repay outstanding arrears (for example, clause 28.9(a) of the Code of Banking Practice states: We will not require you to apply for early release of your superannuation benefits to repay the whole or any part of your credit facility with us).
  • FSPs should explore alternative options with the borrower.
  • If it is apparent that the borrower can afford ongoing repayments but cannot clear the arrears on the loan, it may be more appropriate for FSPs to capitalise the arrears. This will resolve the arrears on the loan as well as preserve the borrower's superannuation balance.
  • Where it is uncertain whether a borrower may be able to meet their loan obligations, it may be more appropriate for FSPs to offer a serviceability test or a reasonable repayment moratorium to allow time for the borrower's situation to improve.
  • If it is clear that the borrower cannot meet their long-term obligations, support a superannuation release is unlikely to be appropriate. This is because the release will merely delay inevitable default. The borrower is still likely to lose their home, and will also have lost part of their superannuation. In these cases, FSPs should consider alternatives such as offering time to sell the security property.
  • Where superannuation releases have been tried and not helped to relieve the borrower's financial difficulty, FSPs should exercise greater diligence before supporting further applications for release.

It is never certain that a borrower will be successful in their application to DHS. This means that even when an FSP decides to support a superannuation release, it needs to consider what assistance it can provide if the borrower's application is unsuccessful. This might include offering time to sell the security property.

2.4 Where an FSP Does Not Meet Its Obligations
Where we consider that an FSP has not met it's obligations, the usual remedies apply for a failure to meet financial difficulty obligations under the FOS Terms of Reference. This often includes compensation for non-financial loss. The borrower may also have suffered financial loss for which we would award compensation.
If an FSP has supported a release of superannuation that we considered inappropriate, we will generally not require an FSP to refund the superannuation amounts received, or reimburse any tax paid by the borrower as a result of the withdrawal of those funds. This is because, in most cases, the borrower will have obtained the benefit of the funds and will have saved interest and fees on the loan.

Our Experience
In our experience in dealing with mortgagee sales at LCollect we have found that it was not appropriate for the FSP to support an early release of superannuation because better alternatives were available or it was unlikely that any such release would assist the borrower in overcoming their financial difficulty. In almost all instances, where a FSP declined to support a release, we found that decision was appropriate.

Source: The FOS Approach to Early Release of Superannuation

Note: Please note that this article does not constitute legal advice. If in doubt you should seek your own proper, independent legal advice.


Council Considers Home Repossessions

Monday, February 27, 2017 - Posted by Michael McCulloch

Several councils located in the Bowen Basin Local Government Area in Queensland are attempting to recoup $10 million in unpaid rates.

The Bowen Basin, which covers an area of approximately 600km long by 250km wide, extending from Collinsville to Moura, has been hit hard by the downturn in the mining industry with unpaid rates impacting heavily on council cash reserves. Mayor Kerry Hayes, of Central Highlands Regional Council based in Emerald, said, "At the moment we have about 16 properties we've indicated, and we've sent the letters out to those ratepayers ... this is the last course of action. As a council and as a business, if the money isn't coming in then obviously works and capital expenditure can't happen".

Pursuant to the Local Government (Finance, Plans and Reporting) Regulation 2010 properties can be sold by Council under s74:

74 Notice of Intention to Sell Land for Overdue Rates or Charges

(1) This section applies if--
(a) There are overdue rates or charges on land; and
(b) The liability to pay the overdue rates or charges is not the subject of court proceedings; and
(c) Some or all of the overdue rates or charges have been overdue for at least-
   (i) Generally--3 years; or
   (ii) If the rates or charges were levied on vacant land or land used only for commercial purposes, and the local government has obtained Judgment for the overdue rates or charges--1 year; or
  (iii) If the rates or charges were levied on a mining claim--3 months.

(2) The local government may, by resolution, decide to sell the land.

(3) If the local government does so, the local government must, as soon as practicable, give all interested parties a notice of intention to sell the land.

(4) A notice of intention to sell is a document, signed by the chief executive officer, stating-

(a) That the local government has, by resolution, decided under this section to sell land for overdue rates or charges; and
(b) The day on which the resolution was made; and
(c) The terms of the resolution; and
(d) A description of the location and size of the land, as shown in the local government's land record; and
(e) Details of the overdue rates or charges for the land, as at the date of the notice, including details of the period for which the rates or charges have been unpaid; and
(f) Details of the interest that is owing on the overdue rates or charges, as at the date of the notice, including-
   (i) Details of the rate at which interest is payable on the rates or charges; and
  (ii) A description of the way the interest is calculated; and
(g) The total amount of overdue rates or charges and the interest, as at the date of the notice; and
(h) A copy, or a general outline, of sections 75 to 78.


Local Government Association of Queensland Chief Executive, Greg Hallam, said in a statement to ABC Capricornia, "For every person that doesn't pay their rates, another person has to pay for them, so it's not all equitable or ethical".

Source: ABC News - Bowen Basin Council Considers Home Repossession to Recoup Unpaid Rates Amid Mining Downturn

This article does is not intended to be, and does not constitute legal advice.


New Requirements for Mortgagee in Possession of Land sales

Friday, July 15, 2016 - Posted by Philip Harvey

From 01/08/2016 in both New South Wales and Queensland, new identity requirements come into force.

In general terms, the changes mean that anyone signing a transfer of property on behalf of a mortgagee in possession must be identified. This will mean:

  • A company search being performed to ensure any signatory to a transfer holds the position as stated (ensuring they are empowered to sign). This applies to Directors, Company Secretaries etc; and 
  • An individual identity check necessitating the citing of original identity documents in the presence of the person being identified.

We will be in touch with you on any relevant mortgagee in possession files to ensure this requirement is met.

Accessing Superannuation for Mortgage Defaults

Thursday, November 12, 2015 - Posted by Philip Harvey

In our recent dealings with the Department of Human Services and a number superannuation funds concerning the release superannuation to stop a mortgage repossession, we learned some interesting anecdotal information:

  • The Department of Human Services advised the maximum amount that can be released is $26,885.26 to stop mortgage repossession
  • The Department of Human Services website advises that the maximum amount that can be released is the value of 3 months arrears AND 12 months interest.
  • Some superannuation funds have their own rules on the maximum amounts that can be released. $10,000 is a common figure we see.
  • For Self Managed Superannuation, the ATO website provides a maximum release of $10,000 in severe financial hardship.
  • This is the same figure the ATO advises for other superannuation funds.
  • As at the time of writing this, applications to the Department of Human Services are taking 4 weeks to process, with incorrectly completed forms returned.
  • The number of applications is increasing. Should this continue, the 4 weeks processing time will increase unless further resources are deployed.
  • A superannuation trustee requires the Department of Human Services to provide a letter in order to release funds.
  • Superannuation funds take at least 14 days to process the release of funds. In our experience this varies enormously.
  • We have one matter where 4 weeks have so far passed and the superannuation trustee has still not provided the release of funds.
  • Any superannuation release is taxed, so the amount released will not be the amount that is applied to the mortgage.


What can we take from all this?

  • If a superannuation release is going to be requested, it should be requested once a Real Property mortgage default notice has been received to allow sufficient time to be processed.
  • Furthermore, there should be open lines of communication between the mortgagor and mortgagee to avoid unnecessary costs.
  • There is no certainty in the final amount that may be released, though there is a very strong underlying intention from the Department of Human Services affording the opportunity for people to remain in their home.

Westpac switches Lenders Mortgage Insurance Provider possible implications in debt collection mortgage repossession

Friday, February 20, 2015 - Posted by Philip Harvey

Westpac has decided to move its Lenders Mortgage Insurance from Genworth to an international re-insurer located in Bermunda, Arch Capital Group.

The implications for the Australian market as evidenced in Genworth's share price dropping is that there are now more options available to lenders for lenders mortgage insurance. Westpac was reportedly 12% of Genworth's book.

So what are the possible implications for mortgage default / lenders mortgage insurance claims moving forward?

Many lenders have noted the tightening of what LMI will pay out on, with a trend to very strict enforcement of all sub limits. With limited competition in the LMI industry, there were not many competitive forces in play. If this is the start of a trend to offshore LMI by the big four banks, it may give lenders more room to negotiates with LMI providers in the future and subsequently obtain better deals and less restrictive sub limits. This has the potential to save lenders thousands of dollars in LMI claims.

Many commentators have already identified the risks the the Australian LMI providers. QBE was about to list its LMI.

Watch this space.


ANZ to Stop Farm Sales in Drought Regions

Friday, December 12, 2014 - Posted by Michael McCulloch

The ANZ have announced today that a 12 month moratorium will be granted on the sale of farms in drought stricken areas in both Queensland and New South Wales.

The announcement builds on the existing support available to drought affected farms in Queensland and New South Wales and includes:

  • A moratorium period on new farm repossessions until December 2015;
  • A 12 month commitment not to increase interest rates on distressed farms and interest rate relief in cases of extreme distress;
  • Financial assistance to support farmers choosing to relocate off the land; and
  • Increasing funding for rural counselling focused on towns hardest hit by drought.
We see this as a positive move by the ANZ and hope that Government intervention isn't required for other Mortgagees to extend similar support to farmers.

Download and read the ANZ Media Release via their website here.

The Financial Ombudsmen Service approach to mortgagee sales

Tuesday, November 18, 2014 - Posted by Philip Harvey

The Financial Ombudsmen Service ("FOS") released its approach to Mortgagee Sales. This includes awarding compensation to a debtor if a property is sold below market value.

Broadly, FOS look to see that reasonable care has been taken in the sale process to sell the property at market value. To determine market value, a sworn valuation from at least one independent registered valuer is necessary. Of note, if the property market is in a downward cycle at the time of sale, the lender does not have to wait for the market to lift or improve before selling the property.

Lenders should not rely on a forced sale value. If FOS investigate a dispute, they will ask for a copy of the market valuation.

In marketing the property, at least one proposal should be obtained including marketing strategies, to sell by auction of private sale, any work necessary to prepare the property for sale. A marketing strategy can include print ads, online adds, property signs, flyers, inspections by appointment or public inspections, flyers. The campaign for an auction should be 4 weeks in length with open house inspections each week.

FOS make specific reference to selling the property as a mortgagee sale or not, and note that such an advertising campaign depends on the circumstances of each sale.

FOS will ask for proof of the marketing campaign including copies of newspaper advertising and internet advertising in the event of any dispute.

You can read more about the FOS requirements here.


Farm Debt Mediation in Victoria

Wednesday, March 26, 2014 - Posted by Michael McCulloch

On 1 December 2011 the Victorian Government started the Farm Debt Mediation Scheme. In Victoria it is now compulsory to offer mediation to farmers before initiating recovery proceedings on farm mortgages.

To those familiar with the NSW Farm mediation, it is very similar. In Victoria, a farmer has 21 days to respond to an offer to mediate, otherwise a creditor can commence action as they normally would.

The mediation is a structured negotiation process with the mediator being neutral and independent. The mediators role is to facilitate discussion, not provide advice. The scheme is administered by the Department of Primary Industries, and applies to;

  • farm mortgages covering a farm (or part of a farm), farm machinery or a water share (within the meaning of the Water Act 1989).
  • farmers, defined as: ‘a person (whether an individual person or a corporation) who is solely or principally engaged in a farming operation’. This includes people who own land cultivated under a share-farming agreement, or the personal representatives of a deceased farmer.
Guarantors to a farm mortgage need to be fully informed and involved in the process.

Mortgagee in possession controlling the sale process v a Bankruptcy Trustee

Monday, March 24, 2014 - Posted by Philip Harvey

In this article, we look at why it is beneficial as a mortgagee to be in control of the sale process as opposed to a Bankruptcy Trustee realising your mortgaged property to minimize any possible loss in the collection of your debts. This article is not a legal opinion or legal advice and should not be relied on as such.

 

A mortgagee must firstly have a right to possession for this to apply. A mortgagee's rights to possession can be found in s57 of the Real Property Act.

 

Very broadly, a default in accordance with an agreement (eg a loan contract) is required before the Mortgagee has a right. Typically, most actions taken by a mortgagee are a result of a loan being in arrears. However there are often many other conditions in standard agreements that if breached will constitute a default giving the mortgagee a right to commence action to obtain possession.

 

These can include an act of Bankruptcy, failure to pay council rates, failure to pay land taxes associated with the property or failure to progress building works in adequate time (these conditions will vary from agreement to agreement, you should read each agreement to get an idea about what conditions may apply in your specific circumstances). In case of a defended matter, a court will determine if the breach of a particular term is serious enough to warrant a default under the agreement. 

 

Generally monetary defaults are considered to be defaults, though were a court can see a debtor reducing the arrears balance, the Court can be hesitant to give a Possession Order.

 

In tight LVR situations, it is vitally important to keeps costs to a minimum in order to avoid a loss.

 

A High Court case in 1933, Universal Distributing Co Pty Ltd (In Liq) [1933] HCA 2 (available on Austlii) which has since been affirmed and applies to real property stated;

If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets. The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it. The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit

This principle by itself seems reasonable. However put this into the context of a how a Trustee charges compared to the costs for a mortgagee in possession, and it becomes clear that the Trustee is much more likely to incur more costs;

 

Costs that are common to a mortgagee and a trustee in realising the security;

- Solicitors costs in obtaining possession (though these costs can vary significantly from firm to firm - LCollect in conjunction with Collection Law Partners offer a very competitive price. We continuously come across examples where other firms charges are more than double).
- Court Fees
- Sheriffs fees
- Real estate agents fees (advertising commission)
- Property maintenance (if necessary)
- Any unpaid council rates, strata fees, land taxes etc.
- Solicitors fees contract for sale of land and associated disbursements

 

Costs that are unique to a Trustee:

- Time charged at a Trustees standard hourly rate (typically in excess of $300 per hour) for time spent on a file. This would include all time spent instructing a solicitor to obtain possession, engaging real estate agents.

 

Whilst it is true that the mortgagee would also be spending time on the file, this time is often already a sunk cost of the mortgagee as it already has staff that can action these as required. If it is not a sunk cost, the mortgagees standard hourly rate would most likely be cheaper than a Trustees.



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