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Released every month our debt collection blog contains news, stories and tips to keep you informed.

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.


The Financial Ombudsman & Judgment Accounts

Tuesday, February 01, 2011 - Posted by Philip Harvey

Last week we looked in detail at the jurisdiction that FOS has on Judgment accounts

We recently had conversations with ASIC about this. ASIC's opinion was that there are circumstances that FOS will review an account that has Judgment, despite the terms of reference outlined in last months article.

We spoke with FOS to get their view on this to try and get a definitive answer.
The broad outline of there response was to seek out the cause of the dispute, breaking it into 2 categories;
  1. Negotiations on Accounts without using a legal instrument on a Judgment account
  2. The use of a post Judgment legal action causing the dispute.

Dealing with negotiations on accounts without using a legal instrument, the implication was that if you were negotiating a payment arrangement with the debtor & these negotiations were not the result of a legal action undertaken (Writ, Garnishee etc) then it is within their jurisdiction.

However if a debtor was raising a matter with FOS because of a legal action undertaken such as a Garnishee against wages, then it would not be within their jurisdiction.

So what to do in the future on these accounts??
We would suggest using post judgment legal action to enforce your debts (Garnishees, Exams, Writs etc). Where a debtor phones you wanting to enter into a payment arrangement, have them attend the court and file an instalment order (though this may raise a dispute where debtors complain to FOS that you will not negotiate, and opens up another can of worms).

We add that we have not received this in writing from either FOS or ASIC. We will endeavour to keep you updated as we encounter more information / examples.

The Financial Ombudsman & Judgment

Saturday, January 01, 2011 - Posted by Philip Harvey

Have you received notification from FOS where you already have obtained Judgment against the debtor? What are the Terms of Reference that FOS operates under in these circumstances? 

Section 5.1 in the FOS Terms of Reference deals  with Disputes outside the scope of FOS & Exlusions from FOS's jurisdiction. Section 5.1 L states;
The service may not consider a dispute that has already been dealt with by a court or dispute resolution tribunal established by legislation, or by another external dispute resolution scheme approved by ASIC.

By having Judgment already against a debtor means that the matter has been dealt with by a court & satisfies this criteria.

We have been advised by a number of our clients of instances where FOS want to hear a matter meeting the above criteria. The first thing you should do is advise FOS of your Judgment & send them a copy of your judgment & SLC. The Financial Ombudsman Circular Newsletter from Augus 2010 deals with this in detail and advises;

"If the FSP considers the Dispute to be outside FOS’s jurisdiction, it should make a written submission to FOS within 14 days of the referral of the Dispute. FOS will consider this submission promptly and if a decision is made to exclude a Dispute, then the process for excluding Disputes contained in paragraph 5.3 of the TOR will apply. This includes providing an Applicant with 30 days to object to an assessment about our jurisdiction to consider the Dispute during which time our file will remain open. 

Where an FSP has obtained judgment against an Applicant for repayment of a debt or possession of a security property prior to the date the Dispute is lodged, FOS is unable to consider a dispute about the FSP’s entitlement to recover the debt or the security under paragraph 5.1(l) of the Terms of Reference. 

FOS will require FSPs to provide copies of legal documents to establish that the FSP has obtained judgment against the Applicant in relation to the debt(s) or property(ies) in dispute. This would include a copy of the Statement of Claim and judgment. 

Further, if the court documents are not clear about the accounts the legal proceedings related to, we may require an FSP to provide information to show that the legal proceedings actually related to the debt in dispute. 

Importantly, FOS expects that an FSP will not take any steps to enforce a judgment until after our file is closed. If an FSP takes a step to enforce a judgment while our file is open, we may report this to ASIC as “serious misconduct”. 

However, parties should be aware that FOS has no power to stop a sheriff from executing an order or judgment. Therefore, lodgement of a dispute will not result in a sheriff being prevented from taking enforcement action. Nor will FOS require an FSP to withdraw an instruction already communicated to a sheriff to enforce a judgment or court order. In these circumstances, the applicant should seek urgent legal advice about any options which may be available to them.

 

FOS's Process for exclusion of Disputes is dealt with in Section 5.3:
a) Where a Dispute is lodged with FOS and: 
(i) FOS considers that these Terms of Reference exclude the Dispute; or 
(ii) FOS decides to exercise a discretion under these Terms of Reference to exclude the Dispute, 
FOS will advise the Applicant (and any other parties that are involved in and have been informed about the Dispute) and provide reasons for this assessment.

In a FOS submission to ASIC, FOS state they are not a court of appeal & they should not consider complaints that have default judgment.

FOS's full terms of reference can be found here
FOS's August 2010 Newsletter can be found here
FOS's submission to ASIC can be found here (relevant submission is on page 5 titled D4)


Does Hardship apply to an Investment Property

Monday, November 01, 2010 - Posted by Philip Harvey

You have a loan where the debtor has borrowed to buy a house as an investment & that loan is now in arrears. The debtor has been sent default notices & has now submitted a Hardship Application. Does hardship actually apply?

The National Credit Code (NCC) was extended to cover loans given to purchase / renovate / improve a residential property for investment purposes. Section 72 of the NCC allows a borrower to request a change to the terms of their credit contract on the grounds of financial hardship. As the NCC applied to residential property brought for investment purposes, Hardship does apply.

The finer print:

  • Credit for residential investment purposes was not regulated by the UCCC. The new NCC commenced on 1 July 2010. An existing  loan for investment purposes that was written prior to 1 July 2010 is not regulated by the NCC.
  • External Dispute Resolution (EDR). We note the above point about contracts prior to 1 July 2010, your EDR scheme may still get involved & force a binding decision on you contrary to the above.

An aside note about Tenants & Hardship:

Tenants can now apply for hardship and be given a 'payment holiday' and not have to pay there rent for a period, with increased once payments resume to catch up. Whilst this is nothing to do with the lender, there is a natural flow on effect. This may see owners of investment properties struggle with payments whilst the payment holiday occurs. You may find the investor applying for hardship with there lender in these circumstances.

Building Societies, Credit Unions and Retail Banks Sign Up to Help Borrowers in Distress

Saturday, August 01, 2009 - Posted by Philip Harvey

Following from last months article on Hardship, The Federal Treasurer (Wayne Swan) recently announced "that all 144 retail banks, building societies and credit unions have signed up to the Government's Principles to assist borrowers who are experiencing financial difficulty as a result of the global recession." 

Options available under these principles to assist borrows in distress include;

  • postponement for up to 12 months the dates on which payments are due under a mortgage contract (with interest to be capitalised into the loan);
  • an extension of the period of the contract and a reduction in the amount of each payment due under the contract;
  • interest-only breaks on loan repayments;
  • fee waivers;
  • extending the loan term and reducing repayments;
  • reducing the limit available under the credit contract and
  • one off temporary overdrafts for short term needs

Additional to this is the Hardship threshold limit increasing to $500,000.

All members of the Association of Building Societies and Credit Unions (ABACUS) have signed and agreed to these principles. ABACUS have released these principles which are located on this link.

To view the full press release made by the Treasurer click here

Further the the Treasurer's announcement and ABACUS accepting the principles, an ASIC press release under the new National Consumer Credit Bill has advised that ASIC's expectation is that Credit Licensees have a contact number for hardship applications. 
ASIC's comments;
"We consider that credit licensees should have clear and effective arrangements to assist borrowers who are facing financial hardship. This includes having a dedicated telephone number for consumers to make hardship applications."

The full ASIC release can be viewed here (ASIC consultation paper 112) 


Hardship

Wednesday, July 01, 2009 - Posted by Philip Harvey

In the current financial climate, we have been receiving a significant increase in the number of questions about Hardship, what to look out for, when it applies and what must be done. In this article we go through the basic steps and some scenarios of what to look out for.


A debtor does not have to formally apply for hardship. Once the Financial Service provider is aware of the debtors financial circumstances, hardship must be offered. We have come across many instances where the financial service provider has advised us that hardship does not apply because the debtor has not formally applied for it. The Banking & Financial Services Ombudsmen has explained this previously (detail below).

The current threshold for hardship is $345,290. If the loan is above this amount, hardship does not formally apply, but as per the Ombudsmens advise, should still be considered.

Banking and Financial Services Bulletin 53 March 2007;


Section 66 of the UCCC gives debtors with a loan of not more than $305,910 ($125,000 in Tasmania) the right to seek a variation to their credit contract where:

  • They are unable to meet their contractual obligations because of illness, unemployment or other reasonable cause; and
  • There is a reasonable expectation of being able to repay the debt if the contract is varied.

A debtor may seek one of the following variation

  • An extension of the term of the contract and a corresponding reduction of payments
  • An extension of the term of the contract and postponement of payments during a specified period; or
  • Postponement of payments during a specified period with no extension of term (which would mean higher repayments after the postponement period).

There is no obligation on the credit provider to agree to the variation. However, if a credit provider does not, a debtor can apply to a relevant court or tribunal for an order varying the contract in one of these three ways.

The BFSO observes that, in contrast to the UCCC provisions, the hardship variation provisions under the Code are not limited to specific circumstances or outcomes. Neither are they limited to consumer lending, nor by reference to loan amount.

Clause 25.2 of the Code provides that a subscribing bank must inform a customer of the UCCC variation provisions if the provisions could apply to the customer's circumstances. In the BFSO's view, informing a customer of the UCCC provisions includes telling the customer at the time of rejecting a hardship variation application that they can apply to a relevant court or tribunal under s68 of the UCCC for an order changing the contract. This information should be relayed to the customer, irrespective of whether or not the credit provider considers that such an application would succeed.



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