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Wed 8th September, 2010
News
Mortgage Mis-Selling - Legal Update |
26th March 2009 |
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MORTGAGE MIS-SELLING – LEGAL UPDATE
RECENT DEVELOPMENTS INCLUDE:
The Financial Ombudsman Service has recently ruled that home owners can obtain financial compensation from mortgage lenders/brokers if they have failed to provide the borrower with suitable advice. Home owners who begin such claims early may be able to avoid repossession.
WHY HAVE THESE CHANGES BEEN MADE?
In the boom years lenders were approving mortgages at record rates. Mortgage brokers were reaping the benefits through commission. In the rush to provide mortgages it appears that these institutions may have been professionally negligent and mis-sold mortgages.
Lenders and brokers are regulated by the Financial Services Authority (FSA). Their rulebook for mortgage advisors (Mortgage and Home Finance: Conduct of Business - MCOB) provide that advice must be “suitable for that customer”. Many people have been sold inappropriate or unaffordable mortgages and in the current climate are experiencing difficulties in making their repayments. Repossessions are on the rise, but can be postponed or even avoided if a mortgage mis-selling investigation is undertaken. The Financial Services & Markets Act 2000 provides that breaches of the MCOB rules are actionable at the suit of a private person who suffers loss as a result. The FOS ruling potentially opens the floodgates to a huge number of claims against lenders and brokers for failing to follow the FSA guidelines.
Examples can include:
· Where housing association tenants who had a fixed rent for life were persuaded to purchase the property, but were not advised what would happen when the attractive discounted rate set up on the mortgage ended.
· Where the broker dealt with certain aspects of the advice / application superficially
· Where a client has been sold a mortgage with a fixed rate for a specified period of the term of the mortgage (i.e the first 5 years of a 25 year mortgage are at a fixed rate whilst the remaining years are at a variable rate). If the monthly repayments on the fixed rate are so high that the borrower is pushed to their financial limit and would have no chance of paying the variable rate in the future and so is, in effect, borrowing beyond their means. If the borrower has been told that when the fixed rate ends they should remortgage with another lender to get a new fixed rate and as property prices were increasing this would be achievable. If the clients were not advised of the inherent risk in this approach they may not have been given suitable advice. As they may not have considered that the value of the property could fall leading them to negative equity, that remortgaging may not be possible (especially in view of the credit crunch) and that the variable rate may be too high to repay.
· In addition Right To Buy purchasers have apparently received particularly poor advice
WHO SHOULD A BORROWER CLAIM AGAINST IN THE EVENT OF MORTGAGE MIS-SELLING?
It rather depends who sells the product. If it is sold by the sales force of the product provider then obviously the claim lies against the lender.
If it is sold by a broker then it lies against him. If the complaint is not dealt with by the broker adequately the client can refer to the FOS which has the explicit power to order the firm to pay for distress and inconvenience as well as financial loss. If the broker is insured and the claim is notified to insurers then they should deal with it. If the broker goes bust but was insured and the insurers don't avoid cover e.g. for late notification then the claimant can recover against the insurers under the Third Party Rights Against Insurers Act 1930.
In the event that a broker goes out of business or a lender has gone into liquidation, as they are both FSA regulated, clients can use the Financial Services Compensation Scheme to pursue any claim. Compensation can be sought for financial loss only.
HOW CAN WE ASSIST YOU?
At Lawcomm Solicitors we are dedicated to using the law to protect consumers to the fullest extent. In times of financial difficulties our services in this area have been requested more frequently.
We have a dedicated team specialising in Financial Claims. We not only deal with a high volume of cases relating to Consumer Credit legislation (including UCA/PPI and secret commission claims) but we can assist clients regarding Consumer Protection issues including Professional Negligence against mortgage lenders and brokers in the selling of mortgages.
For further details please telephone the Financial Claims Review Team on 01489 864100 or e-mail fcrt@lawcomm.co.uk.
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There is a downloadable file to go with with article:
Download Mortgage Mis-sell Legal Update
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