Released every month our debt collection blog contains news, stories and tips to keep you informed.
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.
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).
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)
The finer print:
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.
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;
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.
"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)
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:
A debtor may seek one of the following variation
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.