Debt time bomb over repossessions

By Penny Haslam BBC 5 Live Report

Mike Lemaic found that repossession was not the end of the matter

As fears grow of another crash in the property market, some of those who had their homes repossessed in the last housing slump are still suffering the consequences.

Mike Lemaic lost his house during the property crash of the early 1990s. He and his wife had separated, he could no longer keep up the payments and their home was repossessed.

That was the end of the matter, or so he thought.

Court surprise

But more than a decade later a letter arrived with a court summons claiming he owed the bank nearly �29,000.

The sale of his old home apparently did not raise enough to cover what he had owed on the mortgage.

The shortfall of �16,000 had nearly doubled because of interest and charges.

Mr Lemaic says he knew nothing about the shortfall.

"I had no idea whatsoever, I didn't know when it was sold, and I haven't heard a thing from them."

Too late

More people may face repossession in the future

He thinks the lender should have contacted him sooner.

"If they have a way of finding me now, and writing to me now with a summons, I'm sure they could've had a way of contacting me earlier," he says.

Mr Lemaic is disputing the bank's claims and he thinks the bank may be legally too late to ask for the money back.

The law says the lender has 12 years to start pursuing this type of debt, but banks and building societies have agreed to adhere to a voluntary code of practice that reduces it to six years.

We're going to see more people having their homes repossessed, [so there is] more potential for the sorts of problems this investigation has revealed Philip Cullum, National Consumer Council

Bernard Clarke of the Council of Mortgage Lenders says the code works well and that banks and building societies are doing enough to get in touch with people.

"Lenders will try and find that person using whatever means that they can," Mr Clarke says.

"They may resort to using professional people who can help them effectively track down someone who may have moved on.

"Clearly it's in their interests to do so because there is a debt outstanding to them. But borrowers don't always respond."

Not helpful

But the voluntary code is not helping mortgage customers, according to Ahmed Butt, a specialist adviser on mortgage shortfall after repossession at the Islington Debt Advice Centre

"I don't know of a single case that has benefited from this guidance," he says.

"The existence of this is essentially nothing more than a fig leaf for the embarrassment of having their member pursue vulnerable individuals so late after the original default."

Mr Lemaic's court case has been postponed while the bank gets the paperwork the judge has requested.

The lender, HBOS, says it has made every effort to tell him about it.

"Since the house was sold, four tracing agents and seven trace and collect agents have been instructed between 1998 and 2007 in attempts to agree settlement," the bank says.

"Each attempt was unsuccessful with mail being unanswered or returned from properties associated with the borrower."

Problems ahead

The problem of repossessed homes not raising enough money to cover mortgage debt arises when property prices fall, pushing owners into negative equity.

The economic climate is not as harsh today, but some experts say we are heading into recession once again.

Philip Cullum, the acting chief executive of the National Consumer Council, thinks that if the economy is going into a downturn, the need for action is urgent.

"The real concern is that the credit crunch is going to make this much more important," he says.

"We're going to see more people having their homes repossessed, [so there is] more potential for the sorts of problems this investigation has revealed."

BBC 5 Live Report can be heard at 1930BST on Sunday 30 March 2008 or afterwards at the 5 Live Report website.

E-mail this to a friend

Printable version