Repossession doesn't always remove a borrower's mortgage burden: Lost property opens the door to trouble

THE NUMBER of repossessions is falling, according to the latest figures from the Council of Mortgage Lenders. Last year repossessions were down by nearly 15 per cent to 58,540.

But for many borrowers, repossession is only the beginning of their financial troubles.

Lenders look to them for the shortfall on sale price of their repossessed homes, and keep their names on a central register of defaulters.

In 1989 Bridget O'Sullivan and her boyfriend took out a mortgage of pounds 83,175 with Abbey National. If you have a joint mortgage you are jointly and individually liable for the debt.

At first there were no problems with the repayments. But then Miss O'Sullivan and her boyfriend split up. He left the property and Miss O'Sullivan could not afford the mortgage.

The mortgage account went into arrears. Miss O'Sullivan says: 'In April/May 1991 I attempted to sell the property. I had a buyer interested to view at pounds 82,000. The mortgage was then about pounds 85,000.

'I checked with the Luton branch, where the mortgage had been organised. They advised me the deeds would not be released at that price. I could not, therefore, sell. I then became redundant in June 1991.

'I had no alternative. The property was repossessed peacefully in October 1991.'

Abbey National finally sold the property in July 1992. The sale price was pounds 62,000.

Miss O'Sullivan waited patiently for the final statement from Abbey. It would tell her how much the shortfall was between the sale price and the mortgage, and what action the Abbey would take.

No statement arrived. In April 1993 she wrote to Abbey. She said: 'I have been patient and tolerant but enough is enough. I am being held in suspension and my life cannot continue with this hanging over me. It has affected my health.'

Abbey responded with a final statement. The shortfall was pounds 30,298 ( pounds 27,000 more than if she had sold the property when she had first mooted the idea). Abbey said she remained liable for the debt.

It would consider any proposals she had for a regular monthly payment towards an agreed amount, in full and final settlement of her liability.

If she had no proposals, Abbey 'had no plans at present to take any further action in respect of the debt'.

Miss O'Sullivan was even more worried. She had no proposals to repay - she had only just found a new job, had no spare income, and no savings. At present there might be no action against her, but what about the future?

She asked Abbey why it did not claim on the mortgage indemnity policy she had taken out with the mortgage. These policies are designed to indemnify lenders against any shortfall on sale price.

Abbey's response was decidedly unhelpful. It said it was the insured party, and if it did not pursue her, the insurer would. The letter concluded: 'In essence this means you are responsible for the debt.'

A different department of Abbey then delivered another 'final statement' - the shortfall was now higher, at pounds 30,552. The letter warned that the debt 'remained her responsibility under the terms of the mortgage'.

She was in despair. She wrote to the Abbey again, saying she had no proposals to pay. Abbey replied that there were no plans at present to take further action, 'but we must of course reserve the rights under the mortgage'.

An Abbey spokesman said that no action to recover the debt would be taken against Miss O'Sullivan now or in the future unless she had a dramatic change of circumstances.

Abbey was also now in the process of claiming on the mortgage indemnity policy. It had first to exhaust all other avenues. Abbey expected that the insurers would take 'the same line as us' and not pursue Miss O'Sullivan any further.

The spokesman said: 'We really do try and handle these cases as sympathetically as possible. It has obviously been a very unpleasant experience for her. But she can now put it behind her, and get on with the rest of her life.'

Mortgage lenders subscribe to a central register. They swap names of those whose property has been repossessed. Your name stays on the register for six years.

The lenders say that the register is not a blacklist and does not automatically stop you getting another mortgage. But you can guarantee that lenders examine any new mortgage application from a previous defaulter with extra care.

Many application forms now have a standard question asking if your property has ever been repossessed in the past.

(Photograph omitted)