House Buyer Almost Escapes Mortgage Liability

A Sheffield house buyer has failed in his recent attempt to have a £48,000 debt wiped out. He was hoping that the 12-year limitation rule on recovery of mortgage loans would enable him to benefit from lax debt recovery on the part of his mortgage lender.

John Ashcroft had bought a house in Sheffield in 1990 for £95,000, borrowing £85,500 from the Bradford & Bingley Building Society. The loan was secured by a mortgage on the property, which the building society had valued at £90,000. When Mr Ashcroft failed to pay any of the interest or capital, the building society pursued a possession order and the subsequent sale of the property. The house was sold in July 1992, realising £57,500, and this amount was set off against the outstanding debt.

Bradford & Bingley did not, however, make any attempt to enforce payment of the balance of the debt of £48,340 for a further three years. The building society wrote to Mr Ashcroft in October 1995, requesting a payment proposal. Mr Ashcroft initially responded with indignation at the time it had taken the building society to make the demand. However, after an exchange of correspondence, agreement was eventually reached that he would make regular payments of £10 a month from October 2000. By 2004, however, he had ceased making payments, with the debt reduced by only £530.

Bradford & Bingley failed to take any further action until August 2008, when they issued proceedings for recovery. At this point, Mr Ashcroft claimed that the building society was barred from so doing by virtue of Section 20 of the Limitation Act 1980, which sets a time limit of 12 years on actions to recover mortgage loans. This claim was rejected at Sheffield County Court on 15 July 2009, with Mr Ashcroft being given permission to appeal.

At the original trial, counsel for Bradford & Bingley argued successfully that by completing income and expenditure statements and making part payment in 2000, Mr Ashcroft had acknowledged his indebtedness within the 12-year limitation period. Mr Ashcroft’s argument was that he had disputed the claim on the basis of what he believed to be an undervaluation at the time of the property’s sale, as compared with the original valuation of £90,000, and that correspondence and the payments made were on a ‘without prejudice’ basis.

The appeal court judges concluded, however, that the trial judge was right to see the completion of financial statements and the commencement of repayments as acceptance that a debt existed, regardless of any dispute as to the amount. As a consequence of Mr Ashcroft’s acceptance of the debt, albeit in part, the 12-year limitation rule did not apply. Mr Ashcroft’s appeal was therefore dismissed.