Category : Mortgage Claims

The Borrower Fights Back

A look at the potential for litigators in the mis-selling of mortgages

About 20 years ago when I was a very junior barrister dabbling in all areas from crime to family and from property to personal injury, I was instructed by a small one-man band firm of solicitors in the North-West. His client had been in a minor car accident and had minor whiplash injuries. I was instructed because I had some distant connection to the claimant.

Fast forward 20 years and that small practice has now approximately 200 fee earning staff and is in the top 20 of solicitors outside London.

Much to my frustration our paths never crossed again as although that client had a good result the firm had their own preferred Counsel in the North, whilst I pursued a very satisfying and rewarding property practice.

What is interesting about this little story is that I have recently been informed that this firm is beginning to make strides in an alternative litigation sector; the mis-selling of mortgages. These claims against mortgage advisers/brokers and mortgage lenders for the mis-selling of mortgagescould not be more different to the world inhabited by personal injury lawyers, but the potential for lucrative litigation is plain to see.

There is of course nothing new about claiming formis-sold financial products. After all, the banks and other financial institutions have already paid out over £10 billion in compensation due to mis-sold PPI. The potential in the mis-selling mortgage market, however, is thought to be even greater since the sums involved in the mortgage sector swamp PPI premiums hundreds of times over.

Of course, it cannot be said that every mortgage was mis-sold, in fact I would be surprised if even 1-2% of mortgages over the last 10 years could be questioned as having been mis-sold, but in a market worth tens of billions, 1% is still an enormous number.

It therefore makes a great deal of sense to explore the possibility of making claims for clients who may have been let down in the past, by their mortgage advisers and lenders.

There are three possible causes of action for a breach of duty towards a claimant in relation to the acts or omissions of mortgage advisers or lenders. They are (1) breach of contract, (2) breach of common law duty (negligence), and (3) breach of statutory/regulatory duty.

The principles that might apply under breach of contract and negligence are very familiar, particularly as the standard of the duty of care in negligence is likely to be co-extensive with that imposed by any regulatory rules. This accords with the principle that the skill and care to be expected of a reasonably competent financial advisor ordinarily includes compliance with the relevant regulatory rules: see Shore v Sedgwick Financial Services Limited[2007] EWHC 2059.Therefore it might be more useful to explore the application of a breach of statutory duty, which is likely to be a less familiar basis of claim.

Liability potentially arises because mortgage advisers and lenders are required to follow the rules detailed in the “Mortgage and Home Finance: Conduct of Business” (“MCOB”) Rules which state that mortgage advice must be “suitable for the customer”. Guidance as to what is suitable is gained from
MCOB 4.7.2R which provides that a regulated mortgage contract will be suitable if the adviser or broker has reasonable grounds to conclude that:
(a) the customer can afford to enter into the regulated mortgage contract;
(b) the regulated mortgage contract is appropriate to the needs and circumstances of the customer; and
(c) the regulated mortgage contract is the most suitable of those that the firm has available to it within the scope of the service provided to the customer;

A mortgage lender is under a duty to lend responsibly under MCOB 11 as the FSA regards it as important that customers should not be exploited by firms that lend in circumstances where they are self-evidently unable to repay through income and yet have no alternative means of repayment. What is important about this is that a mortgage lender can be found liable even if it has not provided “advice” or a “recommendation”. To that end the decision of the Court of Appeal in the mis-selling interest swap case of Rowley & Green V RBS [2013] EWCA 1197, which at first blush could be read as reducing the opportunity for success against lenders, will be very distinguishable, because it is the contravention of the MCOB rules which will result in liability being established for damages under Section 138D of the Financial Services and Markets Act 2000.

The benefit of a breach of statutory duty claim to a proposed claimant is that losses can be recovered simply by showing that there has been a breach of a rule causing them to suffer loss, rather than having to rely on that breach as evidence of negligence.

Of course, as in any claim, it is not sufficient to simply identify the existence of a breach. The normal legal principles of causation apply so that the breach must have caused a loss both as a matter of fact and as a matter of law. In addition, the loss must not be too remote and must be of a type that a court can compensate by awarding damages. In Rubenstein v HSBC Bank plc [2011] EWHC 2304 (QB) at paragraph 117, HHJ Havelock-Allan took the approach that the measure of damages under section 150 of FSMA (the predecessor to Section 138D) was no different from that which could be recovered for breach of contract or in tort and that the same approach to causation, foreseeability and remoteness would apply.

So what should we make of all this?
Well, there can be little doubt that there are many examples of mortgages being mis-sold. We can also be quietly confident that existing and well established principles can work together with the regulatory rules to found potential claims. The only real question then is how the courts will react to these claims when they surface in the county courts. Time will tell, but if mis-sold mortgage claims begin to find favour before the judges, we can be fairly confident that there will be plenty of legal work in the future, even if the bubble on the mass volume personal injury litigation has taken somewhat of a hit in recent times.

Article by : Steven Woolf
Barrister

Mis-Sold Mortgages – “The Perfect Storm”

On the 31st October 2004, the Financial Services and Markets Act 2000 included a raft of MCOB rules that gave rise to brokers and lenders being regulated.

The onus to lend prudently fell squarely on the shoulders of the lender and gave rise to examining the ethics of numerous lenders that, following the 2008 global financial crisis, became known as “sub-prime lenders”.

It was commonplace to offer interest-only mortgages to customers with no means or provision for repaying the capital at the end of the term and sometimes to extend the term far beyond retirement age.

As lenders wanted to lend more money, they relaxed their criteria to allow “self- certification” whereby the customer simply confirmed that they earned a sufficient amount to repay the loan.

These are just a few examples of the lax lending criteria that led to customers being shackled with mortgages they could ill afford and very little option but to cut their losses and downsize in view of the strict lending criteria that currently prevails.

Although the legislation to curtail the shoddy lending practices that had become commonplace came into existence close to ten years ago, it was only after the financial crisis of 2008 that the number of UK lenders was reduced by 40% and the number of mortgage products fell by 93%.

This demonstrates the mass exodus of sub-prime lenders from the market place and consequently the very limited options available to those that had been mis-sold.

The Legal Consultancy has identified the need for a specialist claims management company to investigate potential claims by enlisting the help of an independent company to carry out a substantive expert witness report.

This allows for a front loaded process of investigation and examination of the facts before the case is validated for quantum and merit and sent with the accompanying report to a specialist firm of solicitors to litigate. This ensures that the case is progressed in the most efficient way possible.