Failure to provide evidence of financial hardship triggers mortgagee sale

The Financial Services Complaints Limited found the borrower had failed to provide bank statements which evidenced their financial hardship. Photo / 123RF

A family who was unable to provide evidence of their financial hardship faces the possibility of losing their home.

Max, his wife Marie, and Max's father Colin purchased a property together, with their combined monthly income of $9,000 comfortably covering the loan repayments of $4,000 a month.

However, shortly after drawing down the loan the family missed a loan payment. Their lender agreed to restructure the loan repayment so they could catch up.

But the family then only paid four of the next eight loan payments.

After being contacted by their lender, Max said they could not afford the payments and asked for hardship relief.

An application for hardship relief showed the family had combined monthly income of $8,700 and expenses of $3,100 – which the lender said they should be able to afford the repayments.

The lender, however, agreed to reduce the repayments to $2,000 a month for six months, before the $4,000 per month repayments kicked in again, at which point the family again failed to make repayment.

After a second hardship application was declined, the lender decided not to reduce the payments again and started mortgagee sale action.

In May 2020, the lender reissued a Property Law Act notice, saying that they would start mortgagee sale action if the loan arrears weren't paid.

The borrowers brought the case to dispute resolution scheme Financial Services Complaints Limited (FSCL) after a third hardship application was declined.

The FSCL found in favour of the lender, agreeing their response to the hardship requests was reasonable.

The organisation found the borrower had failed to provide bank statements which evidenced their financial hardship.

Susan Taylor, FSCL chief executive, said consumers should not rely on hardship applications indefinitely and that it was important to keep talking to lenders proactively if you think that you may battle to make your loan repayments.

"It is important to remember that hardship relief does not and cannot last forever as that is not in anyone's best interests.

"The longer that hardship relief continues, the longer it will take you to repay the loan in the long term. You will also pay more interest over the life of the loan.

"If you cannot afford to increase your payments when the hardship relief ends, there may be no alternative but to sell the secured asset, e.g. the house or car, rather than risk having the lender sell the asset in a forced sale."

The FSCL said it could not ask the lender to reduce the payments to $2,000 a month simply because the family said this would be more affordable for them.