Solicitors Miss Opportunity to Help Homeowners with Mortgage Arrears

A Kent law firm says that many solicitors across the country are missing a chance to help homeowners facing mortgage arrears or negative equity by not informing them of their right to sell their homes. The issue is linked to a 1992 test case, Palk v Mortgage Services Funding plc, which established that a court can overrule a lender and allow a sale even if the price does not cover the mortgage debt. Despite this, few similar cases have been pursued. Instead, lenders continue to repossess and sell homes for less than they would fetch if the owners sold them.

Key Takeaways:

• The 1992 test case, Palk v Mortgage Services Funding plc, established that a court can overrule a lender and allow a sale even if the price does not cover the mortgage debt.
• John Pratt of Meredith Smith & Pratt says that lenders have a duty of care to borrowers and that their wishes must be balanced with what is fair to the borrower.
• Pratt has threatened lenders with court action and all have backed down, suggesting he would have a strong case in court.
• Pratt argues that lenders should agree to the sale of a property even if it means a shortfall, as it would have been in the best interests of both the borrower and the lender.
• It is generally accepted that if a lender sells a vacant, repossessed home, it will fetch less than if the owners had been allowed to continue in occupation and sell the home themselves.
• Pratt believes that there may be thousands of people who could benefit from solicitors taking a similar approach.
• Borrowers should get legal advice immediately if they are notified of repossession proceedings to assess their position.

Statistics:

• The value of the property in one instance fell by around £60,000 over the next year after the lender refused to accept the owner's sale price.
• Plumbers estimate the value of the home would have appreciated by a significant increase had the owners been allowed to continue in occupation and sell the home themselves.
• The potential shortfall would have been at least £60,000 in the instance mentioned.

Sources:

• John Pratt, Meredith Smith & Pratt
• Palk v Mortgage Services Funding plc (1992 Court of Appeal test case)
• The Sunday Times (Copyright (C) 1994)