Some mortgage lenders are still chasing individual borrowers who defaulted
in the property collapse of the early 1990s. In principle, the borrower will
remain liable, even if the property has since been sold and the debt is no
longer secured. But, what is the limitation period in respect of such claims?
- principal sum: 12 years from the date upon which the right to receive the
money accrued.
- the interest: six years from the date upon which the interest became due.
In practice, the real problem is deciding when time starts to run. The HL has
made it clear that the time runs from the date of default (not the later date
when the bank worked out the amount of the shortfall). The starting point is
to take the last payment and add 12 years to that date. Remember that
‘payment’ will not include realisation of the property or any other security (eg
endowment policy).
However, it becomes more complicated. Time can begin to run afresh by
there being an intervening ‘acknowledgement or payment’ by the borrower
(s29(5) LA 1980). Because of this provision, it is important to review all
documentation to see whether any letters can amount to an
acknowledgement of indebtedness, and anyone acting for a borrower must
be particularly careful in how they respond to a letter before action (in case
there is an inadvertent acknowledgement). As far as joint debtors are
concerned, it is important to look at the correspondence with the other codebtor,
even though one joint debtor is not automatically bound by the
acknowledgement of the other (but, with married couples, one spouse may
be treated as acting as the agent of the other).
Even if there has been an acknowledgement, it is important to check whether
it was made ‘without prejudice’. Remember that the correspondence need not
be headed ‘without prejudice’ for it to attract without prejudice privilege.
Moreover, any letter or document will be without privilege if it contains a
genuine attempt to settle the matter without resorting to litigation. What that
means in practice is that, if there is a significant amount of correspondence,
the chances are the judge will hold that this amounted to negotiation with a
view to settlement (eg in one case an advice centre sent two letters to the
bank on behalf of the borrower offering to pay £500 ‘towards the
indebtedness’; this was held to be without prejudice even though the
correspondence was not marked without prejudice).
The important point is to appreciate that there are many arguments that can be
raised on behalf of borrowers (including arguments as to the amount of interest
due which we have not mentioned above). Accordingly, we recommend an
excellent article which examines all these issues in [2006] SJ 246.
|
