Mortgage lenders call in debts from Eighties' slump

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The Independent Online
THOUSANDS OF people who had their homes repossessed up to 12 years ago are now being presented with huge debt bills from mortgage lenders, a report revealed yesterday.

The study by the National Association of Citizens' Advice Bureaux (Nacab) shows that banks, building societies and insurance companies are all chasing former borrowers for debts long after repossession.

The cut-off point for action on most debts is six years, but in the case of mortgages the time limit is generally considered to be 12 years. Nacab wants the time limits on mortgage shortfall debt brought into line with those for other debts.

A Nacab spokeswoman said: "In recent months [we] have been inundated with clients who thought they had put the devastating experience of losing their homes behind them, only to find themselves years later faced with a debt they have no way of repaying." The Nacab figures show that the average debt being chased is pounds 27,000 with some as high as pounds 67,000.

Some lenders are waiting up to 10 years before contacting former borrowers about the debt, the report said. The debts have come about because for many people who lost their homes during the property slump of the early Nineties, negative equity led to a shortfall between the sale price of their repossessed home and the value of their mortgage. In most cases, other costs such as legal fees and interest have been added.

Nacab says there is evidence that many people were given poor advice and even misled by lenders about their responsibilities after repossession. The spokeswoman said: "Borrowers struggling with arrears and in negative equity were told by their lenders that if they handed back their keys that would be the last they would hear of the matter."

Case histories include a couple in Sussex who went into arrears and whose home was repossessed in 1991 when the husband had to take time off work to care for his wife, who had cancer. They were told not to worry about their outstanding arrears of pounds 3,500 but in 1998 they were presented with a debt claim of pounds 30,000.

A couple with two children in Lincolnshire had their home repossessed by their lender in 1990, despite finding a buyer on their own and being ready to meet the expected shortfall of pounds 1,000. Nine years later they received a demand for pounds 8,000.

Nacab wants the Government to pass a law to give borrowers in negative equity and facing possession the right to sell the property themselves. It also wants to see lenders give borrowers full information on their continuing responsibilities following repossession.

A spokeswoman for the Council of Mortgage Lenders said: "We are receptive to the messages contained in the Nacab report, but people should remember that lenders have to manage a tricky balancing act. If they are constrained in their ability to recover debts from borrowers that debt doesn't just go away, it is simply subsidised by other customers ... We don't accept that a large number of borrowers have been poorly advised or that lenders regularly wait more than six years before taking action to recover debts."