• In order for you to understand and deal with this situation, I will describe the background of the problem, and the ‘thinking’ of the lenders.

• Banks and building societies are resurrecting outstanding shortfall debts due on repossessed homes in the property slump of 1990-94. As many as 300,000 homes were repossessed with an average shortfall of £30,000 per home: some deficits are as high as £100,000. The reason for the resurrection is thought to be favourable economic conditions that leave the average worker with more disposable cash. Some of those workers are the targets of the banks and building societies; however, in order to find out who can start to repay their debts, every ex-borrower will be targeted.

• The issue that consumer bodies are raising is the unlimited time period allowed for lenders to take action against the debtor. Some house debts go back 12 years (being the maximum period in which a lender can claim against you), and the average is 8 years. The period for pursuing other debts through the courts is 6 years.

• After 6 years people start to build a new life and the demands for ‘written off’ debts are causing stress, hardship and as an absolute minimum is ‘unfair practice’.

  What can you do?

• The debt is payable under English law if under 6 years old and ‘possibly’ payable if between 6 and 12 years old: this does not mean that a court would enforce the whole debt, or even part of the debt. Many homes were sold far below market value (some sales were criminal, and many were negligent), further, lenders added contentious fees and interest. With the new court initiatives (favouring pre-court resolution) lenders would take a fearsome assault on their ‘good’ name from the courts – Halifax BS has 50,000 debtors! Resolution can happen in three ways:
  1. Pay the debt in full on demand

  2. Offer a sum in full and final settlement

  3. Make no offer due to current financial commitments and/or circumstances

  1. Pay the debt in full on demand
  If your circumstances allow you to settle your debt in full and you prefer to do so, you should ask for a ‘full and detailed’ breakdown of the debt (a fee could be payable). When you receive the breakdown, take the figures to your accountant for a second opinion (there is little point in paying add-on’s and the lender is unlikely to argue).

  2. Offer a sum in full and final settlement
  On receipt of the (usual) solicitor’s letter demanding payment, request a ‘full and detailed’ breakdown of ‘every penny’ of the claim and get an accountant to confirm the amount. Your concern at this stage is not to argue any add-on’s, but to get the overall figure as low as possible. When you have the lowest figure, offer 5% and be prepared to pay 10%. Stay in control and strong (not aggressive). Your offer is likely to be accepted on a long overdue debt as an alternative to court (especially since in almost every respect that the debt was a write off some time back).

  3. Make no offer due to current financial commitments and/or circumstances
  If your circumstances do not allow you to use a solicitor, and if you are in the UK contact your local Citizens Advice Bureau or the Consumer Credit Counselling Service on 0800 138 1111.

• Do not talk to a debt agency, solicitor or a representative of the lender on the telephone: tell them to send letters in future. You are unlikely to be an expert telephone negotiator, or remember the salient points of your conversation. If you send a letter, use a heading of ‘Without Prejudice’ this means the content of your letter can not be used against you in court, nor could any offer you make be considered as an acceptance of liability.

• Do not provide personal information to anyone connected to the lender. That includes an Income and Expenditure Statement: I have previously advised you to provide information and full co-operation to your creditors, however, this situation is not a standard debt scenario and providing information is much like providing the rope to hang yourself with.

• Finally, with this type of debt the lender (or solicitor’s) ‘bark is worse than their bite’. The property boom of the 80’s was always going to have casualties, the banks and building societies were always going to make money and losses were catered for. The resurrecting of shortfall debts is an immoral action in many cases and you should remember that if you receive one of their letters.

• Personally, and I do mean personally, I would throw the first letter in the bin, reply in horror at the second letter, and use option 2 or 3 on the third contact.

UPDATE 15 December 1999 The Halifax Building Society announced that as of 5pm, Tuesday 14th December 1999, all mortgage debts older than six (6) years will not be pursued. You should seek professional advice to establish your own position. It is hoped that other building societies will follow suit. The move by the Halifax does not change the above article.

Many thanks to Colin Duguid of Debt 24.com who is taking the time to provide this information as a service to homeworkers.