Am I Liable for mortgage losses

[lordsugar]

3 years ago I voluntarily surrendered my property back to the Abbey National after 12mths. They eventually sold the property with a loss of £121,000 !!!! Since that date I have never witten to them or made them a payment. I have heard that after 6 years I am no longer liable is this true ...

[acerbic]

Have a good read on this site, I'm led to believe that for a mortgage it becomes statute barred after 12 years not 6 as with credit cards etc. I just haven't found the thread yet. Maybe you'll find it.

[Killerschick]

Hi Lordsugar,

 

The limitation for mortgage debts is 12 years rather than the standard 6 years for other credit agreements as they are formed by deed.

 

Members of the CML (Council of Mortgage Lenders) have voluntarily agreed not to pursue mortgage shortfalls after 6 years if they have not attempted to do so within the 6 years. However, all they need to do is send one letter to an address you may be linked with in the first 6 years to enable them to continue pursuit after 6 years whilst complying with the CML agreement. They do not need to have any acknowledgement from you or any confirmation that you received their correspondence and the 6 year period is not legally binding so if breached you could not rely on this in any defence.

 

The 12 year limitation period runs from the last payment made to the mortgage or the last written acknowledgement of the mortgage debt.

 

Hope this clarifies.

 

KC

[sillygirl1]

The limitation act for mortgages has been defined as 'the day after the payment which caused the arrears' so therfore the 6 year period where they can charge interest (at 8% rather than at the orginal loan interest so I believe) is now nearing its end and after another 6 years it is over.

 

With the shortfall amount you can hammer Abbey and ask them to explain to the court why there was such a loss when they could have let you stay and recouped quite a sum from you.... plenty of case law to stuff them with.

[sillygirl1]

Just them writing doesn't allow them to chase you ad infinitum, you have to acknowledge to them that you admit to owing the shortfall.

 

Sorry killerchick but the 'just writing' in the time period does not

 

a) keep the clock ticking from that time

b) mean you have admitted to the debt - especially if they sent the letter recorded or registered post

 

This is a myth created by the industry to trap unwary and unknowledgable people.

 

Also with a mortgage shortfall you need an itemised statement (mine is a joke and they cannot substantiate their fees nor provide further details....) on an annual basis.

[Killerschick]

Just them writing doesn't allow them to chase you ad infinitum, you have to acknowledge to them that you admit to owing the shortfall.

 

Sorry killerchick but the 'just writing' in the time period does not

 

a) keep the clock ticking from that time

b) mean you have admitted to the debt - especially if they sent the letter recorded or registered post

 

This is a myth created by the industry to trap unwary and unknowledgable people.

 

Also with a mortgage shortfall you need an itemised statement (mine is a joke and they cannot substantiate their fees nor provide further details....) on an annual basis.

 

Hi Silly Girl,

I think misunderstand me, I was not trying to say that the mortgage company simply sending a letter would extend the period a lender could legally pursue a mortgage shortfall. Perhaps it would help if I provided more detail.

The CML statement

Shortfalls arising from the last recession (1989-1993ish) started being pursued in earnest by lenders and mortgage indemnity insurers in the late 90's and understandably resulted in much negative reaction and litigation. To try and improve the industry's image and offer some comfort to borrowers, the CML updated its statement of practice on arrears and possessions in 2000. At the time it was widely accepted that a mortgage shortfall could legally be pursued for 12 years although the issue had not been tested in the higher courts. The CML's statement at point 29 was as follows:-

'In addition, from 11 February 2000, lenders who are members of the Council of Mortgage Lenders have agreed voluntarily that they will begin all recovery action for

the shortfall within the first six years following the sale of a property in possession. Anyone whose property was taken into possession and sold more than six years ago, and who has not been contacted by their lender for recovery of any outstanding debt will not now be asked to pay the shortfall. The Association of British Insurers supports this approach on behalf of the mortgage indemnity insurers. In Scotland, lenders will begin recovery action within five years.'

The CML's statement was further clarified at points 30 and 31 to specify when this new voluntary 6 year limit would apply. In this case 'just writing' is sufficient for the lender's purposes to be able to comply with the voluntary CML statement. There is no requirement for the lender to have any acknowledgement from the borrower to then continue pursuing the shortfall for the 12 years provided for in law.

'Does this time limit apply to every case?

The new time limit does not affect anyone who is already adhering to alternative payment arrangements for the shortfall debt or who has already been contacted by the lender, even if the initial contact was made with them by the lender after six years from the date of the sale of the property in possession. The six year limit only refers to beginning recovery action and does not affect a lender’s ability to recover the shortfall debt over a longer period. If there is evidence of mortgage fraud, the new time limit will not apply.

Following the sale of a property in possession, lenders often find it difficult to contact the former borrower to advise them of any surplus monies or shortfall debt. Lenders use a variety of measures to identify where the individual is now living. This might include using tracing agents. Situations can arise where a lender or its third party agent is trying to contact the individual (for example, by letter or telephone) to discuss repayment of the shortfall, but the individual simply chooses to ignore such contact. This is despite the fact that the contact is being made at the individual’s new address. In these cases, lenders will consider that contact has been made for the purposes of the new six year limit. Lenders will also consider that contact has been made where the borrower has responded to the lender’s correspondence. Simply sending the borrower a final statement of the mortgage account alone will not constitute contact. If an individual is unclear whether contact has been made within the six year period, the lender will be able to confirm the position. '

Since 2004 this voluntary agreement has been included in the FSA's Mortgage Conduct of Business rules. MCOB 13.6.4 states:-

'(1) If the decision is made to recover the 1sale shortfall,1 the firm must ensure that the customer is notified of this intention.

(2) The notification referred to in (1) must take place within five years of the date of the sale (if the regulated mortgage contract or home purchase plan 1 is subject to Scottish law) or within six years (in all other cases). '

This does not change the legal position and is not legally binding but if a lender was to fail to comply in relation to an FSA regulated mortgage (i.e. a residential 1st charge mortgage taken out since 31 October 2004) a complaint might be made to FOS. Again, a lender would not require an acknowledgement of the debt to satisfy this rule and it would be sufficient for them to demonstrate that the notification had been sent to the borrower at an address at which they were reasonably believed to be resident.

The legal position

As I have said it was generally assumed that mortgagees had 12 years to pursue a shortfall from the date of the sale of the property. This assumption has been tested in the last 10 years and the legal position clarified.

In the case of Bristol & West Plc v Bartlett & Anor [2002] EWCA Civ 1181 (31 July 2002) it was established that a mortgagee has 12 years to pursue payment of the principle debt under section 20 (1) of the Limitation Act 1980:-

(1) No action shall be brought to recover—

(a) any principal sum of money secured by a mortgage or other charge on property (whether real or personal); or

(b)proceeds of the sale of land;

after the expiration of twelve years from the date on which the right to receive the money accrued.

And 6 years to pursue payment of interest under section 20 (5) of the Limitation Act 1980:-

(5) Subject to subsections (6) and (7) below, no action to recover arrears of interest payable in respect of any sum of money secured by a mortgage or other charge or payable in respect of proceeds of the sale of land, or to recover damages in respect of such arrears shall be brought after the expiration of six years from the date on which the interest became due.

At this point it was a commonly held belief that a mortgage shortfall could be pursued for 12 years from the date of the sale of the property. This aspect of the law was also to be tested in the case of West Bromwich Building Society v. Wilkinson & Anor [2005] UKHL 44 (30 June 2005). This case established that the 12 years runs from the date of the last payment not the date of sale and the case of Bradford & Bingley Plc v. Rashid [2006] UKHL 37 (12 July 2006) established that correspondence acknowledging a debt also starts time afresh.

Conclusion

I hope this makes it clear I am not labouring under the misapprehension that correspondence sent by a lender starts time afresh for them to pursue a legal claim. My intention was to illustrate the fact that lenders are not supposed to pursue a shortfall for the maximum legal period of 12 years if they have not taken some action within the first 6 years. I wholeheartedly agree that a payment or written acknowledgement is required to start the 12 year legal limitation period afresh and hope I have illustrated the legal framework for this.

Lordsugar says he surrendered his property 3 years ago so (assuming no subsequent contact or payment from him) Santander therefore legally have a further 9 years to pursue him for the principle element of the shortfall.

I would be very interested to know the case law in relation to challenging the amount of the shortfall and the where the requirement for an annual statement comes from. I know there is a requirement in relation to FSA regulated mortgages for annual statements under MCOB 7.5 but didn't realise this continued after possession in relation to shortfalls. I also understand that MCOB 13.5.1 provides a requirement for statements a minimum of quarterly even on shortfalls if charges are being applied to the account.

KC

[ninjainthenight]

in a nutshell you are liable. if they have tracked you down to try and gain payment i would assess your overall financial situation and consider bankruptcy privided you have little equity in your home. seek professional financial help, and by professional i do not mean a 3rd party no win no fee,or a debt counseller who sells debt management plans. try consumer credit counselling service or CAB.

[caro]

Something for you to consider. http://www.consumeractiongroup.co.uk/forum/showthread.php?169002-Mortgage-Shortfall-important-new-decision&highlight=

[Killerschick]

Thanks Caro, an interesting case on a point which was very much in debate when I worked at CAB years ago (2005/6). Although our concern that lenders would start enforcing the money judgments obtained in possession proceedings without bringing any further proceedings and whilst this might means claims for reduced amounts it would not give borrowers the opportunity to raise any issues with the handling of the sale of the property. I would be interested to know if there has been any binding precedent set on this issue as yet.