Mortgage blow to borrowers

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Hundreds of thousands of people who have had their homes repossesed because they were unable to pay their mortgages were dealt a blow yesterday by a High Court judgment saying they are still liable for their debts, writes Nic Cicutti.

A claim that borrowers should be allowed to offset their mortgage indemnity insurance policies against any debts incurred when the value of their homes falls were rejected by the landmark ruling.

The judgment, by Mr Justice Waller, means that Woolwich Building Society, which brought the case, is legally entitled to claim the full amount of pounds 73,000 it claims to be owed it by a former borrower.

Frank Bartlett, head of lending at the Woolwich welcomed the decision: "We have laid a stake in the ground for many millions of people who pay their mortgages and meet their obligations. We do not see why a minority of people should be able to walk away when we try to recover the debt."

The judgment dismissed a claim by Iain Brown, the borrower and a former Woolwich employee, that he should not be liable for the full pounds 73,000 debt because he was the legal beneficiary of the indemnity policy.

At a hearing earlier this month, specifically called to test the law on this issue, the Court heard that Mr Brown borrowed almost pounds 88,000 on a 100 per cent mortgage to buy a house in 1988.

Woolwich lent him the money on condition that he pay for a indemnity policy to the value of some pounds 22,000, a quarter of the loan's value.

Mr Brown fell behind in his payments and his debt mounted to pounds 125,000. The house was repossesed about 2 years ago and eventually sold for pounds 52,000, leaving pounds 73,000 outstanding.

Woolwich received pounds 22,000 from the indemnity policy, but claimed the full amount owed from Mr Brown. He argued that he had paid for the policy and its arrangement was a contractual arrangement which entitled him to the proceeds.

The judge ruled that although he paid for the policy, he was not the beneficiary of it.