Mounting debts haunting the repossessed

The incidence of mortgage firms chasing borrowers who have had their homes repossessed has reached crisis levels, according to a new report.

The National Association of Citizens Advice Bureaux (Nacab) today begins a campaign to curb the powers of companies pursuing borrowers who have lost their homes to a repossession order or who voluntarily handed in their keys.

The problem has become so severe that CAB debt advisers say they are spending up to a quarter of their time dealing with people who receive demands for outstanding mortgage debts - often years after they lost their homes.

About 260,000 people lost their homes either by handing in keys or by repossession in the five years to December 1993. Figures from Nacab suggest that the average mortgage shortfall debt - the gap between the price at which the property is eventually sold and the original loan plus charges and interest arrears - is £27,000, a total £6.5bn being chased by lenders.

But most borrowers with shortfall problems do not even know that they could be pursued. Many were told that the matter was ended when they lost their homes.

Nacab will lobby ministers to change the law so lenders have a maximum of six years to pursue shortfall cases instead of the 12 years the loan organisations claim.

The Halifax, Britain's biggest home loans group, backs Nacab's demand. Phil Jenks, head of mortgages, said: "I wouldn't be unhappy with six years - it gives lenders plenty of time to establish the chance of a customer paying."

He said some lenders operating in London and the south-east, where debt problems have been most severe, have begun to chase money outstanding from 10 years or more because property prices are soaring in those areas and many borrowers formerly in trouble have value in their present homes.

John Wriglesworth, an independent consultant and former Bradford & Bingley director, said some lenders had only just started to chase old debts after concentrating on more immediate arrears problems.

"With house prices rising and better employment prospects, they now see that employing debt collectors is a profitable exercise."

Nacab mortgage debt expert Liz Phelps said: "We are not arguing for people to be let off debts but it is not helpful for borrowers to be left in the dark for years and then suddenly be faced with a demand for huge sums.

"Those we see average £27,000 but one was as large as £67,000, while we know there are former borrowers who are hit with even larger sums who choose to go to a so licitor or other adviser instead." Some former borrowers have had demands for £200,000 or more.

Nacab says a couple in Essex handed in the keys following a marriage breakdown in 1990. They were told that this would be the end of the matter. Both left forwarding addresses with the loan company but heard nothing before receiving a £55,990 shortfall debt demand in May 1999.

Nacab chief executive David Harker said: "Six years gives lenders ample time to start action to recover money they are owed.

"Otherwise the danger is that people will start rebuilding their lives, embarking on new relationships, starting new families and taking on new financial commitments, based on the false assumption that a line has been drawn under their repossession trauma. A demand out of the blue for a debt dating back many years can spell family breakdown and a lifetime of poverty."

Nacab claims that an appeal court judge has backed its argument against the legality of the 12-year rule.