Arrears, a premature possession claim and a £50 fee

Premature proceedings. The arrears rules require the lender to give the customer a reasonable period - 15 business days - after notifying an intention to start possession proceedings, and to allow that period to run before issuing. Between 3 and 12 March there were at most seven or eight business days, so the claim was issued too early.

No affordability assessment. The rules require the lender to deal with the customer fairly, to obtain income and expenditure information and to consider forbearance before litigating. Refusing a £150 offer on the phone without any assessment, and never requesting a budget, is a failure of arrears handling. The £90 surplus now shown means a payment arrangement was always viable.

The fee. £50 a month is charged to an account that is already in arrears, which increases the debt the customer must clear to regularise. Arrears charges must reflect a reasonable estimate of the actual cost of the activity and must not operate as a deterrent or a penalty. £250 of fees in a £6,400 arrears balance needs to be justified line by line.

Procedure. The Pre-Action Protocol for mortgage arrears expects possession to be a last resort and requires the lender to attempt resolution. Issuing a claim while a reasonable offer is on the table is likely to be viewed poorly by the court and by the Ombudsman.

Immediately: suspend or withdraw the possession claim, confirm in writing, stop the monthly arrears fee pending review and accept the customer's budget as the basis for discussion.

Forbearance options to assess, in order of least detriment:

• A payment arrangement: the £90 surplus plus capitalising the arrears, or a short-term reduced payment with the shortfall made up later.
• Extend the term of the £142,000 mortgage to reduce the contractual payment, which directly addresses the loss of overtime.
• Switch to interest-only for six months. The Mortgage Charter allows a borrower to move to interest-only, or extend their term, for six months without an affordability check and without it affecting the credit file.
• The Charter also prevents the lender from repossessing within 12 months of the first missed payment unless there are exceptional circumstances.
• At the June rate change, look at a product transfer to a lower rate; the existing customer rules mean no new affordability assessment is normally needed for a like-for-like switch.

Charges: refund the £50 fees if they cannot be shown to reflect actual cost, and correct the arrears balance accordingly. Complaince with the Mortgage Charter and the arrears rules should be recorded on file, with dates.

In court. Under section 36 of the Administration of Justice Act 1970, where the lender claims possession of a dwelling, the court may adjourn the proceedings or suspend or postpone possession if the borrower is likely to be able to pay the sums due within a reasonable period. A documented £90 surplus, a five-month arrears period caused by a known income shock and an offer of £150 a month that was never assessed give the court every reason to suspend on terms rather than order possession.

Non-compliance. The early issue of the claim and the absence of any assessment are matters the court can take into account, and the Pre-Action Protocol requires the parties to try to settle. The customer's solicitor should put the chronology before the judge.

Complaints. The customer can complain to the lender and, if not resolved within eight weeks or if unhappy with the final response, take the case to the Financial Ombudsman Service within six months of that response. Redress can include refund of unreasonable charges and correction of the credit file.

Practical advice. Tell the customers to keep paying what they can, respond to every letter, keep copies, and use the free debt advice sector. Non-engagement is what loses these cases, not the arrears themselves.