Credit file clean up help - Mortgage

14 Long-term secured loans

Although long-term, secured loans, such as mortgages, are likely to involve monthly repayments, they are an exception to the general standard. The existence of a secured asset which, if repossessed, will indemnify the lender, and the length of the term involved, distinguish this category from the majority of products. This may mean that the lender is prepared to allow the customer greater latitude if the account gets into difficulties. A lender may decide that, even though one or more of the above indicators has occurred or more than six months has passed without a payment being received, there is no breakdown until they have decided to take possession of the asset. Nevertheless, there are practical problems facing lenders in these circumstances because in some cases, even after court action to gain possession has been taken, a customer will go on to repair the relationship by starting again to pay on a regular basis the contractual sums (or at least an agreed compromise sum that would constitute a variation in payment terms as indicated in paragraphs 17 -23).

If meaningful information is to be reported to credit reference agencies there needs to be a consistent approach by lenders that also needs to take account of the practical problems they face. This is also necessary to treat all customers in this situation fairly.

Consequently, a lender should file a default no later than six months after the date of a successful court application to proceed with possession unless

• the customer has made reasonable and agreed arrangements to repay,
• the lender can justify not filing a default on an exceptional basis. For example, the lender is fully informed of the circumstances and knows that payments will start again, or
• the loan has been included in a bankruptcy in which case the default should be filed in accordance with the guidance in paragraphs 47 – 48.

In rare circumstances the court can grant possession on conditions that delay physical repossession for a long period of time, even though the customer is not making an acceptable agreed level of repayment. This is usually on compassionate grounds. In these circumstances the lender should record a default within the six month period of the order date.

Relationship of defaults to CCJs, decrees, bankruptcies, IVAs and similar arrangements

46 We do not see any inconsistency in filing defaults relating to debts which the lender has also tried to recover through a CCJ or decree. Of course, the default must not be filed as being after the date of the CCJ or decree.

47 In normal circumstances lenders will be notified when the debt that is owed to them is to be included in a bankruptcy or IVA. In these cases lenders should file a default relating to an account that is included in an IVA or bankruptcy as soon as they receive the notification. In principle, a default should be filed as being no later than the date of the IVA or bankruptcy. We understand that on some occasions a lender does not immediately become aware of the court’s decision. In these cases, we are satisfied if a lender files a default when they become aware of the position, providing the delay is only relatively short. In these circumstances a lender should backdate the default filed to the date of the bankruptcy or IVA if the customer requests this. Where a credit agreement, for example, hire purchase on a motor vehicle, is not included in an IVA or bankruptcy, then it should be treated separately from the debts included in the IVA or bankruptcy and not be automatically marked in default. Similarly, where there is joint and several liability, and one party becomes bankrupt, then the account should not automatically be marked in default, because the other party will be responsible for it and may maintain payments.

48 Where a customer continues to pay a debt in line with the original contractual obligations, despite the debt being included in a bankruptcy or IVA ( including where the bankrupt agrees with Official Receiver that payments will continue), the lender would not be obliged to record the account as in default. If the customer stops payment at a later stage, the default recorded should show the date of the IVA or bankruptcy and the fact that it was settled only by IVA or bankruptcy as described in paragraph 51.