Adding fees to mortgage arrears

[DanielF]

A relative on mine has noticed that fees have been added to their mortgage account and the lender is demanding them as part of their arrears. My relative did not notice this until after her possessopm hearing when an agreed payment plan was made. They have tried to get the terms and conditions of the mortgage but with no luck. What should they do?

DanielF

[OLIVE.FAMILY]

When you say they have asked for the terms and conditions how did they go about this, was it by phone or by letter?

olives xx

[DanielF]

Both, phone and letter

[OLIVE.FAMILY]

Well that is very naughty. Somebody with a bit more knowledge of what to do will be about soon, but as far as I am concerned not only should they supply a copy of the agreement with the terms and conditions but also they shoulld be adding fees to the mortgage as you already know. Them adding it to the arrears means that the arrears are not going down as fast which means they carry on charging.

 

I would write a letter of complaint to the lender. Ell-enn will probably be about and gie you some quotes for th letter as well.

 

sorry I cant be of more help

 

Who is the lender by the way?

 

olivesxx

[DanielF]

Sorry for the delay. The company is Preferred Mortgages and Capestone deal with their mortgage services. What's not right is they've added these fees as part of the arrears balance and then present them on the legal paperwork for a possession hearing as arrears making the account alot worse than it really is. This was higlighted to the judge who recommended taking legal advice. My relative is getting ready to place the case the FSA and as yet no terms and conditions even though the lender says it's part of its terms and conditions.

 

Does anybody know what the FSA say about this type of situation or any legal case of a similiar nature? How did your case go with Kensingtom Mortgages? l'll wait for Ell-en. My advice to anybody is to check any letters demanding payment of arrears and check that the fees are not added. If they are get the terms and conditons. Thanks

 

DanielF:)

[wellmeantadvice]

Hi Daniel,

 

Firstly, I agree that the fees should have been added to the mortgage balance, rather than to the arrears. However, if they are repaid over the remaining term of the mortgage, then it means that interest will accrue on these amounts for the remainder of the mortgage term.

 

If a repayment plan has been agreed that is affordable, then yes, it will take a little longer to pay off the amount including the fees, but it will mean that you have less to pay in interest.

 

I agree that adding the fees to the arrears figure does make the figure look worse in the hearing, but if a suspended order & repayments were agreed at that point, then it is no longer relevant.

 

So all in all I would say that perhaps things did not quite go as they should have done (although some mortgage terms & conditions do allow for fees to be added to the arrears), but in practical terms this should not really disadvantage you.

[DanielF]

I agree with you to a point. But the issue is should a mortgage lender add fees to the arrears balance, not indicate to the courts that they are fees and then claim that the account in in arrears by 2 months at the date of the claim when perhaps the reality is that it is say 1 month or less. Is it right to have a suspended possession on those grounds? The crux really is What is the precise definition true arrears? Once the industry sorts this out and it has the same defintion for all lenders then it would make it much better for those going through proceedings as it is now a level playing field. When the paper work is presented at proceedings the judge can see the true state of play of the mortgage account andf thus a much fairer honest resolution can be obtained. So I'm afraid you can be disadvantaged!!! Perhaps lenders have been getting away with this for some time

 

DanielF

[wellmeantadvice]

Daniel,

 

It depends on the terms and conditions. Some terms and conditions stipulate that fees can be added to the arrears, others will add them to the balance.

 

In practice, most mortgage companies will not pursue arrears by way of court proceedings unless they are more than 2 months' worth, but again, there is no legal requirement for this (-while there is a guideline by the Council of Mortgage Lenders, this is not binding; it depends on what the mortgage agreement states). The law is quite clear that the right to possession crystallises upon default, and is exercisable thereafter (s. 101 Law of Property Act 1925, Halifax v Taffs, CA (1999)).

 

You state that "if the judge can see the true state of play of the mortgage account andf thus a much fairer honest resolution can be obtained. So I'm afraid you can be disadvantaged!!!".

 

I'm not sure I quite agree with you there. (I would agree whole-heartedly if the judge made an outright order for possession as a result of horrendous 'mortgage arrears', which turned out not to be mortgage arrears). If it is an undisputed fact that there are some mortgage arrears, and it is also an undisputed fact that there are fees to be paid, and the judge does not make an outright order for possession, but suspends the order on payments which the Defendant says he can afford, then I don't see any prejudice. The fees will have to be paid back at some point; if they are added to the arrears repayments, they will be paid back more quickly & interest will accrue on them for a far shorter period of time.

[Rhadamanthus]

At the risk of performing the function of an echo I would tend to agree with wellmeantadvice.

 

Generally speaking proceedings are (or can be) issued when the account is 2 months in arrears. By this time the additional charges are unlikely to be so huge as to distort the arrears figure. By the time the hearing comes around there will likely be at least SOME arrears which under the contractual terms will entitle the mortgage company to an order; if the judge is concerned by the size of the arrears and is seriously considering granting an outright order as opposed to a suspended then it is of course appropriate to point out that only x amount of the arrears is actual missed payments.

 

Again wellmeantadvice is correct in the assertion that ironically it is to the advantage, or at least not to the detriment, of the borrower to have the charges on the arrears rather than the balance as at least they will be addressed with all speed rather than as a nasty shock at the end of the term!!

 

Of course Daniel is correct in stating that if the t & c say the charges should be added to the balance then it is inappropriate to add it to the arrears but still as long as the situation is clarified for the judge I'm not sure I see a major (or minor) disadvantage.

 

Damn too much agreeing with people

[DanielF]

Its great we are having a discussion on this. I can see your points. As long as the borrower points out that the fees are this and the subscriptions are that to the judge then there should be no problem. The borrower needs to obtain the full terms and conditions though.

 

I have more questions, but I'll do this next week

 

Thanks

Daniel

[Rhadamanthus]

Possibly the point that should also be considered is interest that accrues on the arrears. I doubt there could be much complaint about this being added, if for no other reason than the money is owed in the same way that the entire debt is owed!! The concern of course is that it will affect, potentially significanty, the amount that is offered to clear the arrears on a monthly basis. i.e an offer of £50 pcm off arrears of £5,000 may appear reasonable until interest is calculated (say 7%) at £29 which means that the offer is only £21 per month. By it's nature this will mean that it will take twice as long to clear the arrears as it first appears.