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Mortgage shortfalls - admit nothing, deny everything

View profile for Andrew Leakey
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The recession has seen the majority of this country’s banks and financial institutions struggling, and a lot of them have taken to calling in old debts, which some borrowers thought were long forgotten. If a property is repossessed and sold for less than the amount of the mortgage, the lender is left with a shortfall, which they are entitled to try and recover from the borrower. Some lenders who repossessed properties 15 to 20 years ago, are now trying to cash in on trying to recover the debt.

The Limitation Act 1980 says a lender has 12 years from the date of the sale of the property, to start Court proceedings against a person for a mortgage shortfall debt. Sounds simple? Well, it’s not. This 12 year limitation unfortunately restarts itself every time the debt is acknowledged by the borrower. This means each time a payment is made towards the debt, however small, the clock restarts; and each time the borrower confirms either in writing, or even on the telephone, that they know that they owe the debt, or receives a demand for payment from their lender, the clock restarts.

The case of Ashcroft v Bradford & Bingley Plc in the Court of Appeal just last week involved Mr Ashcroft, who’s property was repossessed in April 1991 by Bradford & Bingley. The proceeds of sale left a shortfall of around £30,000. Mr Ashcroft heard nothing for three years, then Bradford & Bingley wrote to him asking how he proposed to pay the debt. Mr Ashcroft initially refused to pay anything as a result of their three year delay in contacting him. However, in around October 2000, he then agreed to make payments of £10 per month towards the debt, which he paid until 2004.

In 2008, Bradford & Bingley started Court proceedings against Mr Ashcroft to recover the money. Mr Ashcroft tried to argue that they were out of time to start Court proceedings, as it was more than 12 years after the property was sold. However, the Court of Appeal confirmed that as a result of the, albeit very minimal, payments of £10, Mr Ashcroft had acknowledged that he owed the debt as late as 2004. Therefore, the lender was not out of time, and the clock had started running again when the last payment was made. Mr Ashcroft lost his appeal.

The Council of Mortgage Lenders (CML) issued guidance in February 2000 which states that anyone whose property was repossessed, and is not contacted by their lender within six years of the sale, will not be asked to pay the shortfall. This only applies to lenders who are members of the CML, and only applies if the lender makes no attempt to demand payment within the first six years.

If you are now being chased by a lender in relation to an old mortgage shortfall claim, and it has been over 12 years since the property was sold, or since payment was last demanded, you should not acknowledge that you owe the debt. This includes making any payments, however small, or confirming either in writing, or on the telephone that you owe the money to them.

You should seek legal advice urgently if you receive any demands, so that your potential defence to any claim can be investigated. Our specialist debt team can help you with this. Contact them on 01942 777777. You may even be entitled to Legal Aid, subject to eligibility.

By consumer solicitor, Heather Korwin-Szymanowska