Default, hardship and collections processes
Domain 10 - Default, hardship and collections processes
This domain tests what happens when a residential borrower misses payments and how lenders must respond.
Core rules
- A borrower can apply for a hardship variation on grounds of unforeseen hardship; the lender must consider it and respond within the statutory timeframe.
- Lenders must not enforce a mortgage without proper notice under the Property Law Act 2007 and must act reasonably.
- Default interest and fees must be disclosed and must not be unreasonable; penalties can be challenged.
- Collections should be documented, proportionate and respect privacy; hardship and complaints processes must be explained.
- Mortgagee sale is a last resort and must be conducted to obtain a reasonable price.
Worked example
A borrower's hours are cut from full-time to three days a week. She asks to reduce repayments for six months. The lender should obtain evidence of the income change, assess a temporary variation, explain the effect on total interest and term, and confirm the arrangement in writing. If the borrower later defaults, the lender should issue the required notices and consider a further hardship application before sale.
Traps
- Treating a hardship request as automatic approval.
- Continuing default interest without checking the variation terms.
- Selling a property without the required notice.
- Discussing the borrower's arrears with family members without authority.
- Failing to record the hardship assessment and outcome.