Guidance for handling arrears and possession sales of shared ownership properties Contents Guidance notes Aim Status Co-ordination and communication Scope: the lender/ha relationship Lender/HA contact details Service level agreement for individual lenders and HAs Contact The guidance Appendix A Example Service Level Agreement Appendix B (separate member-only document) Shared Ownership: list of lender contacts for registered providers and others wishing to co-ordinate with lenders over existing shared ownership loans Appendix C (separate member-only document) Shared Ownership: list of housing association contacts for lenders and others wishing to co-ordinate with housing associations over existing shared ownership loans Copyright September 2014 Council of Mortgage Lenders, National Housing Federation, Homes and Communities Agency and the Building Societies Association
Aim This guidance for lenders and housing associations (HAs) has been prepared jointly by the Council of Mortgage Lenders (CML), National Housing Federation (NHF), Homes and Communities Agency (HCA) and the Building Societies Association (BSA). It embodies the commitment of both organisations to ensure that the shared ownership model, which has worked successfully for over 30 years, functions as effectively as possible for the benefit of owner/tenants, HAs and lenders. Status This guidance supplements the more general guidance Shared ownership: Joint guidance for England published by the Homes and Communities Agency, the CML and the Federation. This new guidance is designed to explain best practice in handling mortgage and/or rent arrears, and to ensure that when enforcement becomes necessary it is handled efficiently, with effective communication between the HA and the lender. The guidance builds on the accumulated best practice experience of lenders and HAs involved in shared ownership. It has no legal status, although particular recommendations may be the same as legal or regulatory requirements placed on either party. Co-ordination and communication The underlying issues are about communication between the lender and the HA to help effective co- ordination. Experience suggests that co-ordination has not always been effective and that in many cases it can be improved along with awareness of the needs of the other party. This guidance highlights the key actions or decisions that each party is expected to take and communicate at the successive stages of the arrears/possession process. Scope: the lender/ha relationship This guidance does not focus primarily on the relationship between a lender and the borrower. Lenders have a range of responsibilities to borrowers; the Financial Conduct Authority, as the industry regulator, sets out requirements in its Mortgage Conduct of Business (MCOB) rules and under its Treating Customers Fairly (TCF) initiative. The courts also impose requirements on lenders in terms of process. The CML has published its own industry guidance to help lenders comply with MCOB 13 and TCF principles. This is available at: www.cml.org.uk. HAs may particularly wish to note the requirements in relation to forbearance, communications with borrowers and achieving the best price reasonably obtainable for properties when sold. The totality of regulatory requirements will frame a lender s strategy in respect of accumulated arrears in a particular case. In the case of HAs, the HA regulator, the Homes and Communities Agency (HCA) publishes comprehensive guidance on the landlord/tenant relationship in general and on dealing with rent arrears. HAs can offer a range of support to leaseholders who are in financial difficulty, from showing where to get financial advice through to using the Recycled Capital Grant Fund to allow households to downward staircase when someone is in danger of losing their home. The key rule when considering taking action over arrears is not to seek possession where there is a reasonable alternative. If this is not possible, HAs are legally entitled to use Ground 8, which is one of the mandatory grounds for possession of an assured tenancy listed in Housing Act 1988 Schedule 2. However, the use of Ground 8 is an extreme step in the context of shared ownership housing, the effect of which is similar to forfeiture. It should not be necessary where the HA and lender work jointly to resolve the problem, if possible with the shared owner. When the use of Ground 8 is unavoidable, the decision should be taken at an appropriately senior level in an organisation, and the lender should be told that this course of action is intended at least 28 days before notice is served. It is most important that both parties understand the requirements placed on the other in respect of the borrower/tenant, and take these fully into account when dealing with arrears/possession.
Service level agreement for individual lenders and HAs A service level agreement sets out a common understanding and framework for standards of responsibilities and service. An example is given in Appendix A. Lender/HA contact details To facilitate effective communication, the CML and Federation have prepared contact lists giving details of who to contact in lenders and HAs respectively in the event of default. These are given in Appendix B and Appendix C. Contact If you have questions or comments about this guidance, please contact one of the following in the first instance: John Marr, Council of Mortgage Lenders, (e) john.marr@cml.org.uk Adam Morton, National Housing Federation, (e) adamm@housing.org.uk Sarah Wilde, Building Societies Association, (e) sarah.wilde@bsa.org.uk Helen Towner, Homes and Communities Agency, (e) helen.towner@hca.gsi.gov.uk
The guidance 1. Dealing with mortgage and/or rent payment difficulty Action to be taken by lender Where possible, tell the HA in writing that the mortgage account has been modified (term-extension, interest-only conversion etc.) to mitigate the risk of an account falling into arrears. Check that your copy of the lease contains a clause authorising you to share information with the housing association/lender before sharing information about the borrower/tenant. Inform the borrower that you have disclosed this information to the HA. Where possible, tell the HA in writing when the mortgage account has an arrears balance which will not be cleared in full prior to the next payment instalment. There may also be rent arrears, which could affect your recovery strategy and theirs. Check that your copy of the lease contains a clause authorising you to share information with the housing association/lender before sharing information about the borrower/tenant. Inform the tenant that you have disclosed this information to the HA. Action to be taken by HA Where possible, inform the lender in writing that the leaseholder and the HA are in discussion about potential payment difficulty. If any action has been taken, this should also be disclosed to the lender. Check that your copy of the lease contains a clause authorising you to share information with the housing association/lender before sharing information about the borrower/leaseholder. Inform the leaseholder that you have disclosed this information to the lender. If possible, inform the lender in writing when there is rent arrears and where you have been unable to reach agreement with the leaseholder to clear the arrears in full. There may also be mortgage arrears, which could affect your recovery strategy and theirs. Check that your copy of the lease contains a clause authorising you to share information with the housing association/lender before sharing information about the borrower/leaseholder. Inform the leaseholder that you have disclosed this information to the lender. Explore options for using flexible tenure or other arrangements. Advise the borrower to contact their HA and/or the free independent money advice sector if they are having difficulty paying their rent or their mortgage. Consider a home visit where appropriate, either independently, or with the HA. Advise the tenant to contact the lender and/or the free independent money advice sector if they are having difficulty paying their mortgage or their rent. Inform the lender when the matter has been entered into small claims court for non-payment. Capitalisation of rental arrears on to the mortgage balance cannot be seen as an automatic solution or as a substitute for reaching an agreement with the leaseholder to repay over a period. Note: if you are considering forfeiture of the lease you MUST give the lender 28 days notice in the form prescribed by the HCA/CML/Federation guidance. Consider a home visit where appropriate, either independently, or with the lender.
2. Managing the enforcement process Action to be taken by lender On issue of proceedings, write to the HA warning of proceedings. Ask the HA if they will assist in marketing the property or if a buyback option could be considered. Action to be taken by HA Reply within 14 days setting out likely position on marketing the property and/or buying it back. If possible, provide the HA with valuation and details of the outstanding mortgage balance and arrears. Consider giving the borrower seven days notice that you intend to disclose information to the HA. Check if there are any restrictions on staircasing and/or whether there is a mortgagee protection clause (MPC) in the lease. On receipt of possession warrant, inform HA in writing. This should include contact details for the relevant person/ asset manager should the HA need access to the property for a condition assessment (likely under a buyback option) If HA cannot confirm a buyer or a buyback, draw up interim income and expenditure statement for approval by the HA if a claim is to be made under the MPC. On receipt of an offer, tell HA of the amount. This may also include a memorandum of sale and a best price certificate. Following exchange and with completion date known, give HA a final statement showing the claim (if any) under the MPC Obtain a valuation and within 14 days and provide a copy to the lender. Inform insurers that the property is vacant and that insurance cover remains in force. If buying back the property, complete within 7 days; if not, give the lender the up-to-date insurance policy Agree income and expenditure and valuation within 2 working days where possible. This may involve providing the lender with solicitors details. Agree sale price within 2 working days where possible. HA to provide sealed memorandum of staircasing and transfer of freehold (if applicable) within 14 working days. Review the claim under the MPC (if any) for approval. On completion, tell HA and transfer funds to HA s solicitors if applicable.
Appendix A Example Service Level Agreement This is an example service level agreement that has been developed by Catalyst Housing Group and Newbury Building Society. A service level agreement is an agreement between two parties that sets out a common understanding and framework on expected standards of responsibilities and service. Parties to the agreement Authorised representative for RSL Authorised representative for mortgage lender Aims and objectives of this agreement Application of agreement Details The Registered Social Landlord (RSL) and mortgage lender to work cooperatively with each other when payment difficulties arise for a borrower and to ensure that effective communication takes place. To encourage the borrower to seek assistance when they have problems in meeting their priority commitments, whether these are mortgage payments, rent, service charges or Council Tax. It is not the intention of either party that this agreement shall be legally binding and therefore neither party shall have any liability to the other for any failure to observe the terms of this agreement. The agreement will apply in respect of shared-ownership leases where the RSL has agreed the terms of the mortgage. Both the RSL and the mortgage lender will encourage the borrower to seek advice when appropriate and will actively promote this. If arrears exceed three months' payments for either the RSL or the mortgage lender, each will consult the other over what action is being undertaken. This can be carried out earlier than three months if appropriate. The RSL and mortgage lender agree not to undertake any recovery action through the courts without telling each other first. Dispute resolution In the event of default to the RSL, the RSL will liaise with the mortgage lender over proceedings that could lead to forfeiture. The RSL and the mortgage lender will seek to agree the action to be taken. If either party considers the other to be in breach of their duties under this agreement or has a complaint about some aspect of the agreement's operation, the parties shall make every effort to resolve through joint discussions. If this remains unresolved, the complaining party should provide the other with written details, including proposals to resolve it. A written response should be made within 14 days. If the matter remains unresolved, the authorised representatives or their successors will be requested to meet with the complainant to resolve the matter within 14 days where possible. If either party is dissatisfied this should be confirmed within seven days of the meeting, and arbitration can be requested with a mutually agreed third party.