In previous articles we looked at the potential heads of claim in relation to mortgage mis-selling. In contract law or tort law, the term heads of claim refers to categories of damage that a party may incur. It uses the term ’head’ in its sense of category – each head of loss refers to the damages that correspond to a particular category of duty.
This article will address how a defendant should address such claims.
There appears to be standard heads of claim submitted on behalf of claimants, but each case will turn on the individual facts.
One common feature which each claimant must prove is causation. A claimant must show that any breach of duty by the defendant caused the loss.
We will also include the approach we believe is being adapted by the Financial Services Compensation Scheme when dealing with mortgage mis-selling complaints.
It is fair to say that even the most unsophisticated of borrowers understand the principal behind interest only mortgages. Despite this fact, the majority of cases choose interest-only as a head of claim. Each case will be dealt with on its own merits. But a defendant can and should take a standard approach in relation to causation. A response such as below addressing the lack of causation is helpful:
“The Mortgage application form and Mortgage Offer explain that the mortgage was on an interest only basis. You signed the mortgage application form agreeing that the sale the property (for illustrative purposes only) would repay the mortgage. There is also a signed declaration on the mortgage application confirming that you understood the terms of the mortgage.”
It is also important to note that the law is not designed to protect a buyer against a bad bargain. Yes, an interest-only mortgage may not have been a good deal, however that does not automatically mean that redress is due. The defendants in these matters may rely heavily upon caveat emptor, let the buyer beware.
Was the sub-prime product the correct one?
In my previous article I addressed the points raised by claimants in relation to sub-prime products. We are aware that the FSCS is taking the view that claims in relation to sub-prime lenders may fail on the issue of causation. Obviously, each case will be fact specific but a common defence to a claim in relation to a sub-prime product is as follows:
“Following advice from the firm, you were under no obligation to proceed with the mortgage if you were unhappy with the subprime lender and the mortgage offered at the time.”
Each case will need to be reviewed in detail to establish fact specific defences in relation to the subprime claim. The fact that a subprime lender has been offered does not necessarily mean it constitutes a mis-sale. There are a host of reasons as to why a claimant may not have been in a position to obtain a prime lender an example being a claimant’s adverse credit history. Again, we reiterate that a product is not mis-sold simply because it is more expensive than other products on the market, it will turn on the claimant’s position at the time of the sale.
Lending into Retirement
We dealt with Claimant’s allegations in relation to lending into retirement in my previous article. However, the fact remains that the term of the mortgage is clearly identified on the majority if not all of the mortgage application and offer documents.
As with interest-only mis-selling claims there is a general consensus that even the most unsophisticated of borrowers understand that with borrowing run past retirement age there is still an onus to make the relevant payments until the termination date.
We are aware that the FSCS determine each case on its own facts. But they do rely upon the standard form documentation. Generally, the standard form documentation will contain clauses similar to the below:
“Your obligations under this Mortgage continue beyond normal retirement age. You should ensure that you are able to afford this Mortgage throughout its term.”
It is important to refer to causation again at this juncture as the fact remains that a claimant did not have to agree to the mortgage. Put simply, they were free to walk away and chose an alternative Mortgage.
Inappropriate Debt Consolidation
It has been argued that consolidating short term unsecured debts into loan term secured debts falls into the category of mis-selling.
However, again a defendant would argue that event the most unsophisticated borrowers understand the implication of converting unsecured debt into secured debt and risks associated with the same.
It is also untenable that a client would not have understood that their property was at risk if repayments were missed. This point is strengthened by the fact that the majority of standard form documentation will highlight the risks associated with a mortgage.
Also, a general plea alleging that the conversion of unsecured debt to secured debt was a missell will not hold any weight.
Each case will fall on its own facts and in particular a client may not have been in a position to pay the monthly repayments towards the unsecured debts.
The demands and needs of the client at the time may have been to reduce monthly outgoings/ increase cash flow and or to have one monthly payment in relation to one debt as opposed to several unsecured payments.
Next week I will talk about capital raising, why affordability is the most important factor when considering best advice and examples of self-cert mortgages taken where evidence of income is available.