Old mortgage debt kicked out by Court of Appeal
A bankrupt who has not paid his mortgage for the past 15 years had his debt wiped out by three judges yesterday.
They ruled that his bank had taken too long to recover the money.
The judges decided that, as Djabar Babai's last contribution was in January 1993, he was entitled to "squatter's rights" and did not have to pay the arrears.
The bank warned that the Court of Appeal ruling might force them to take early action against debtors, which could lead to vulnerable home owners losing their properties more readily.
But Lord Justice Mummery said that institutional lenders had access to expert legal advice, so there should be no difficulty in taking the necessary legal action "within the ample 12-year limitation period".
Mr Babai took out a second mortgage with NatWest on his £200,000 home in Heaton Mersey, Stockport, in 1989, but started to run into financial difficulties.
Although the bank issued a formal demand for payment in 1992, it took no steps to begin repossession proceedings or protect its legal position.
Mr Babai, who was made bankrupt in March 1993, paid some instalments after negotiations with NatWest but his last payment of £40 was made in January 1993.
NatWest made a further demand for payment but still took no legal action to enforce its rights.
In March last year, Judge Richard Arnold QC accepted arguments from Mr Babai's bankruptcy trustee that, with so many years having passed without legal action, he effectively had "squatters' rights" over his home and the NatWest mortgage was "extinguished".
Yesterday, Lord Justice Mummery, sitting with Lord Justice Hughes and Mr Justice David Richards, dismissed the bank's appeal and rejected the argument that Mr Babai had only stayed in his home with the bank's "express or implied consent" and had therefore not developed rights of "adverse possession".
He said the bank's right to enforce the mortgage was "barred" under the terms of the 1980 Limitation Act because more than 12 years had passed.
Lord Justice Mummery said the decision would be "of considerable interest to mortgagees and mortgagors in general".
Justin Fenwick QC, representing the bank, said there might be a "significant number" of other cases in which mortgage debts would be wiped out because of the ruling.
Lenders "could be forced to issue possession proceedings, where they would not otherwise have done so" to protect their security.
Lord Justice Mummery described such a situation as "an alarming, but unlikely prospect" and said the practical implications of the decision against NatWest "are in danger of being exaggerated".
Ronan Kelleher, a NatWest spokesman, said the bank was "disappointed" and was considering an appeal to the House of Lords.
"We are disappointed that the Court of Appeal judgment limits some of the bank's discretion to allow borrowers more time to make repayment," he said.
Source Telegraph 13 February 2008
DW Comment
Although this judgement will be well received by Mr Djabar Babai it may well cause heartache to others as it will wake up lenders to enforcing proceedings much earlier in order to protect their position.
For such a large lender not to take action after 12 years from the date of the last payment demonstrates a relaxed attitude and raise questions about their legal department. My praise goes to the Trustee in the debtor’s bankruptcy for fighting the case.
The retort from Ronan Kelleher, a NatWest spokesman that the bank was considering an appeal to the House of Lords is the bog standard PR reply. He went on to say ‘We are disappointed that the Court of Appeal judgement limits some of the bank’s discretion to allow borrowers more time to make payment’. No doubt he will be callling next for a return of the debtor's prison!
NatWest need to accept the ruling, clear out their old files and start treating debtors with more respect. Remember, it is not a crime to be in debt. It is not the debtor’s fault if the lender fails to act within the law and collect monies due within a specific time limit.
For more in depth information on house repossession debt and why lenders claim such large amounts click here