Lenders that make a claim on a lender's mortgage insurance policy and receive a payment may be in breach of their obligations if they have a dispute with the borrower lodged with an external dispute resolution service at the same time.The latest Financial Ombudsman Service newsletter, which was published yesterday, set out FOS's view on a lender's obligations in dealing with a customer in financial difficulty.The FOS's terms of reference say that a lender "must not take any action to recover a debt [which is] the subject of the dispute, to protect any assets securing that debt or to assign any right to recover that debt, while FOS is dealing with the dispute."FOS said the act of claiming on an LMI policy did not constitute recovery action, but if a claim is made and paid then an "assignment" will be deemed to have occurred. This would be a breach of FOS's terms of reference.FOS said it had dealt with a number of disputes in which the applicant is in financial difficulty and the sale of the property securing the loan does not repay the loan, and the lender may then have made (or intends to make) a claim on an LMI policy.FOS said: "The lender should genuinely consider the customer's ability to pay the shortfall debt when it becomes due. A repayment arrangement may be more appropriate than any claim on the LMI policy."