New hope over old debts after repossession ruling

Thousands of repossession victims still being chased for debts many years after losing their homes could now get mortgage lenders off their backs - thanks to a landmark legal decision.

A Court of Appeal verdict in favour of a Norfolk couple and against the West Bromwich Building Society will stop lenders pursuing many former homeowners, forced to leave their properties up to 15 or more years ago when they fell into mortgage arrears.

The judgment will cost lenders millions, forcing them to refund money paid in the past following debt demands.

In the late 1980s and early 1990s many homebuyers borrowed to the hilt, fearful of being priced out of the then soaring property market. But as house prices peaked, borrowers were squeezed between fast rising interest rates and growing dole queues. Repossessions hit an all-time high.

Most repossessed properties, whether the borrowers handed in keys or were hit by a court order, were worth less than the outstanding debt. This negative equity worsened from late 1989 onwards as the big house price slump knocked more than 50% off some property values.

But many home losers picked themselves up, dusted themselves down, and eventually bought another home.

They thought their home loan debt misery was in the past. But lenders claimed they had 12 years in which they could begin action to chase former homeowners. By that time, many who had had arrears were now back in positive equity thanks to house price gains. They could afford to pay, lenders reasoned.

They were tracked down. and asked for huge sums - in one case over £350,000 - to cover past arrears, interest, repossession and sale costs, insurance and negative equity.

Last week the Court of Appeal decided lenders had chosen the wrong starting date for the 12 year "limitation" period. It found for the Wilkinsons, a Norfolk couple, and against the West Bromwich.

Lenders had always counted the 12 years from the day the property was sold - even if this was long after the repossession. But the new ruling says the 12-year clock starts ticking from the date the borrower first fell into arrears. "The gap between the two can be many years," says solicitor Stephen Murrell of Staple Inn Partnership in London's Chancery Lane, who helped research the case. "The way is now open for legal help for thousands of borrowers who are, or who are liable to be, pursued for arrears outstanding when their homes were repossessed. The judgment has a general application. Banks and building societies will either have to drop debt chasing or return money they have already taken."

In October 1988, Mark and Lynne Wilkinson borrowed £34,895 from West Bromwich Building Society to buy a house in Norfolk, paying £484 a month. In January 1989, the couple hit hard times and fell into arrears.

In late July 1989, the West Bromwich repossessed. By now the Wilkinsons' debt had jumped to £43,648.

In November 1990, the West Bromwich sold the house for £34,000. It then claimed the Wilkinsons owed more than £57,000 - leaving £23,921 after the sale proceeds. The society also claimed 8% annual interest.

The Wilkinsons, who had no money, found a new home. They put their debt nightmare to the back of their minds. Their peace was shattered in November 2002 - 12 years less two days after their former home was sold - when the West Bromwich tracked them down and demanded the £23,921, plus interest and costs. The couple approached the Diss and District Citizens Advice for help.

Then they went to court, arguing the 12 years should start from the date of the ar rears, not from the house sale date. "They lost in the county court. There were at least 15 other similar cases which were found in favour of the banks," says barrister Nigel Meares, a property and land law expert.

"But they were given the right to appeal so there must have been some doubts," says Meares, who acted for the Wilkinsons on a no-win, no-fee basis.

"We had to accept the period to recover a mortgage debt was 12 years - last year's Bristol & West vs Bartlett case decided that. So it all revolved around when those 12 years kicked off - in legal parlance 'when the right to receive money' started," he says.

Meares cited the 1833 limitation act, an 1882 appeal court case, a 1894 case, a 1980 law, and several other legal precedents.

And all three appeal judges agreed with him. "More than 12 years had expired for the date of arrears. The society could not recover the shortfall," the court said.

Lenders have yet to decide how to react to the decision. The Council of Mortgage Lenders said: "We are still considering the ruling. We will be discussing it further with the West Bromwich Building Society and with the rest of our members before deciding whether or not we think it has any wider implications for the industry."

"We do not believe it is right to make any comment," said West Bromwich.