Having scoured the Q & A’s for information relating to the 6 and 12 year rule I am still uncertain what exactly constitutes the resetting of the clock. I have been in communication with the solicitors on and off for around 5 years. Now they are back on the case. If the debt hasn’t been acknowledged, no I & E form returned, all letters written stating ‘without prejudice’ would the 6 or 12 year clock be re-set at the time that I acknowledged their first letter or does it still remain the time from when I first defaulted on the mortgage payment. I would also be grateful for confirmation that it is actually the case that the 6 and 12 year time starts from defaulting on mortgage payments as oppose to the repossession or sale of the property.

-- paul delouche (delouv@mweb.co.za), February 21, 2004

Answers

Bristol & West Plc v Bartlett Paragon Finance Plc v Banks Halifax Plc v Grant The issues surrounding negative equity in the property market have recently been addressed by the Court of Appeal in the above cases. Lenders had pursued claims for shortfalls (the amount remaining due to the lender after the proceeds of sale of the mortgaged property had been received) on the basis that the applicable limitation period was the 12 year period specified either by section 20 of the Limitation Act (“the Act”), because the money was secured by a mortgage, or by section 8 of the Act, because the money was secured by a document under seal. In 1997 the Court of Appeal raised doubts about the applicable limitation period when Auld LJ stated in Hopkinson v Tupper that it was “seriously arguable” that a shortfall claim was a claim under a simple contract. If that were correct, shortfall claims would be subject to a 6-year limitation period pursuant to section 5 of the Act. Osborne Clarke acted for Bristol & West Plc one of 3 lenders who sought clarification of the issue. It had been alleged that Bristol & West Plc could not recover the shortfall following the sale of Mr and Mrs Bartlett's house having commenced proceedings less than 12 but more than 6 years after the date of sale of the property. The Court Appeal has now decided that: (a) A lender has 12 years after the cause of action accrues to recover amounts outstanding in respect of capital; (b) The cause of action will normally accrue when the entire mortgage debt becomes due (usually on the monthly instalment payment being missed for 3 consecutive months OR as specified in the mortgage deed); (c) A lender has 6 years after the cause of action accrues to recover interest due before sale, although the question of interest accruing after the sale of the property remains open; (d) An express covenant relating to a mortgage shortfall debt does not give the lender a new cause of action following the sale of the property; (e) A lender should be able to show how the net proceeds of sale were applied to the mortgage account to avoid complex questions of appropriation of interest or capital.

Hope this explains the situation.

-- JUST ASK (justask@btinternet.com), February 21, 2004.

Hi Just Ask or anyone else who may know,

Do you have any information on Woolwich vs Brown (1995)? I've spent loads of time looking for info on this case but am not having much luck, all links I did come across say something about it being unreported. Any help will be much appreciated.

-- Kelly (kelly@sorrycantsay.com), February 21, 2004.

The case you refer to is : Woolwich Building Society v Brown (13 December 1995, unreported)

So you will be lucky to find anything bar the odd statements here and there.

Following a case called Woolwich v Brown 1995 the Court of Appeal has decided that generally mortgage indemnity insurance only covers the lender and not the borrower so needless to say that the issue at hand was no doubt about the MIG.

I have found some information from the IOB (Insurance Ombudsman Bureau)can be found at http://www.theiob.org.uk/index.html, which might be of use here, please see below.

MORTGAGE INDEMNITY POLICIES

1. Negative Equity Trap There has been considerable publicity for a particular problem arising for unfortunate householders caught in the ' negative equity' trap. When they bought the house, they naturally took out a mortgage, and the lender required them to make an additional payment for a mortgage indemnity policy provided by an insurer. This was to cover any shortfall if the property had to be sold by the lender in the course of realising its security. Typically, these guarantees were required when the amount of the mortgage exceeded 85% or so of the value of the property at the time. The combination of economic pressures forcing more householders into arrears and of declining property values had led to insurers having to pay out on these guarantees. They then claim the right to recover the amount of such payments from the unfortunate householders (who have by then lost their homes). Such claims are by way of subrogation to the lender' s right to repayment of the debt. Householders in such circumstances complain that they thought they were getting the benefit of an insurance for which they were paying, and they ask me to determine whether they are entitled to that. The question which arises is whether we have jurisdiction to consider such complaints. The insurers concerned consistently maintain that we do not.

One basis on which such complaints could come within my jurisdiction would be if the indemnity policy concerned was for the benefit of the householder, as in the case of the group policies we have referred to above. However, to pursue that point, we need the agreement of the lender as policyholder, and so far no lender has been willing to agree to that.

A second possibility is to see whether the householder is himself entitled to be treated as a policyholder under the policy, so that the lender' s consent to my involvement is not necessary. It has been suggested in the press that, particularly in the case of some of the older indemnity policies, this may be the case. We have therefore begun asking the insurers concerned to send me the policy wording applicable in each case so that we can check for ourselves. In one case, where it was clear that the proposal for the policy had been made by the lender, and the terms of the policy made it clear that it was ' for exclusive benefit' of the lender, I was unable to hold that the borrower was entitled to a look in. The majority of cases appear to come into this category. However some cases are not so clear and there may be some in which, exceptionally we are able to exercise jurisdiction.

The third possibility is that the householder may have been given assurances by the lender that he or she would be covered by the policy. This may well justify a complaint of misrepresentation against the lender but it will not normally give rise to a justifiable complaint against the insurer. For that to be the case, we would need to be satisfied that the borrower had reasonable grounds for believing that the lender was acting on the insurer' s behalf in giving those assurances. We have not yet encountered any cases coming into that category.

On the whole, therefore, we are not able to do much for the unhappy borrowers in these cases, but we share the general concern over the issues they raise. Whilst we normally hesitate to comment on matters outside my jurisdiction, there are two points here which we suggest should be more fully addressed by the insurers and lenders involved. First, at the very least it need to be made clear to borrowers entering into these arrangements that the mortgage indemnity premium they pay is not something they are going to benefit from themselves, but is part of the price tag for obtaining the loan in the first place. As it is, particularly when the premium is lumped in by the lender with other premiums for household insurance and life assurances which the borrower will indeed be benefiting from, it is easy to see how confusing it all can be.

Second, we see no reason why borrowers should not be able to benefit from some form of cover in these situations. The common argument, as stated by Staughton LJ in The Mortgage Corporation v McNicholas (22 September 1992, unreported) is that no insurance company ' would be stupid enough to provide insurance in favour of individuals in the even of their not paying their debts. It would be a licence to claim money' . Surely it is not as simple as that. The indemnity is not simply in respect of the borrower' s failure to pay his debts, but is in respect of the security provided for such payment turning out to be of less value than either borrower lender thought at the outset. When all concerned act in good faith, the intention is that if the worst comes to the worst, the value of the house will be sufficient to discharge the borrower' s debt to the lender. Why should the borrower be unable to insure against the risk of this proving not to be the case? Many borrowers would no doubt be willing to pay whatever extra premium was required to make sure that they had the benefit of such cover. We hope these observations will add fuel to the continuing debate. Unfortunately, they only address the problem for the future. The present unsatisfactory situation remains. AR (94) p. 19

2. Practice The documentation for the MIG policies we have seen is often incomplete. Most of the policies provide for schedules to be prepared, specifying which individual loan transactions are covered by a particular policy. These schedules are generally non-existent. Nevertheless, such documents as there are establish that the borrower is not a party to the MIG insurance. We have our own opinion from leading Counsel on this point, as well as the one the Board obtained.

I have also seen an opinion from leading Counsel obtained independently by the Consumer' s Association, and opinions obtained by MIG insurers on their specific wordings. There have also been court decisions in individual cases [see, for example, the Mortgage Corporation v. McNicholas (unreported) 22 September 1992; Woolwich Building Society v Brown (13 December 1995, unreported) In my view, it is unlikely that a court would consider that the lack of complete documentation materially affects the basic nature of the contract. We were therefore not satisfied that we had jurisdiction in any of these cases, in the absence of specific evidence that a particular case constitutes an exception. There has been no such evidence in the 88 cases seen to date. AR (95) para 1.7.4 p. 20 3. Reference

(a) The Mortgage Corporation v McNicholas (22 September 1992, unreported)

-- JUST ASK (justask@btinternet.com), February 22, 2004.

Phew! Some very full answers above. I'd only like to add for the sake of clarity that when Just ask refers to the place where you can find out the exact conditions that determine when the cause accrues (ie, when the lender first has the option of calling in the whole debt), (s)he says it's the mortgage deed - I'm not sure this is the same document as the mortgage terms and conditions, but it was certainly the t&c I needed to look at to find this info in my case. hth

-- Melody (melody_clarke@yahoo.co.uk), February 23, 2004.

You would normally receive the terms & conditions along with the mortgage offer and the lenders valuation. The mortgage deed copy of which is held at the land registry is the convent; this is usually more detailed than the terms & conditions (which basically state what is required of the borrower and third parties prior to acceptance).

It is within the deed/convent that you will find when the lender has the option of calling in the whole debt or indeed should the borrower wish to pay off the mortgage. So they are to entirely different documents, which would need to be examined should you want to challenge a shortfall claim.

The terms & conditions is usually supplied on a SARN, or when the lenders solicitors wish to rub ones nose in it out of complacency, however it tends to be a very poor photo copy you get, for some reason typical of most information the lender provides, as if we did not know why.

JUST ASK

-- just ask (justask@btinternet.com), February 23, 2004.

Thanks very much for your info. It's been extremely informative. I think the question of viability regarding default dates is now incidental as it's been nearly 14 years since probably the 5th or 6th missed payment. What I'm still unsure about however is the re-setting of the clock. Am I right to presume that re-setting the 12 year clock will be determined by the following: 1)Acknowledging the debt either returning I & E forms or making some form of offer or monthly payment or 2) the instigation of court proceedings or the submission to the defendant of a MJO or stat. demand.

Many thanks

Paul.

-- paul delouche (delouv@mweb.co.za), February 24, 2004.

Any payment that is made within an existing limitation period restarts time unless it is clearly stated to be 'ex gratia', i.e. on the basis that liability is not accepted, as does an acknowledgment.

A letter is probably not protected by 'without prejudice' unless it contains an offer to negotiate or is part of negotiations.

A financial statement that has been signed may well amount to an acknowledgment but it depends on the context.

For example, if a letter categorically denies liability and then goes on to say the the person does not have any money to pay the alleged debt anyway, and includes a financial statement to back this up, it probably isn't an acknowledgment.

I know of one claim where a signed financial statement was held to be an acknowledgmet, and I think this will usually be the case.

In the vast majority of mortgages time starts to run as per the terms and conditions of the mortgage - usually after two or three missed payments. Where time has started to run follwing default, no new cause of action arises (i.e. time is not restarted) on the sale of the property, even where there was a covenant in the mortgage to pay any shortfall. Bartlett was quite specific about this.

However, as above, time is restarted by acknowledgment or part payment.

There is currently uncertainty as to when time starts to run in respect of West Brom mortgages, but this is due to be resolved shortly by the CA - see West Bromwich Building Society postings.

Hope this helps.

All the best

Guy

-- Guy Skipwith (guy@skipwith107.freeserve.co.uk), February 25, 2004.