A recent Court of Appeal decision held that the limitation period for bringing proceedings for the principal sum due under a mortgage is 12 years, even where the debt is no longer secured by the mortgage because the lender has repossessed and sold the property.
This decision was given in three cases considered together: Bristol & West Plc -v- Bartlett and Another, Paragon Finance Plc -v- Banks and Halifax Plc -v- Grant. In each case, the lender had advanced sums pursuant to a mortgage over residential property. Following the borrower’s default, each lender repossessed and sold the property for an amount less than the outstanding debt. The lender then sought to recover the shortfall by proceedings.
It was held that the lender’s cause of action for the principal debt arose under the terms of the mortgage deed. The fact that the lender’s power of sale had been exercised did not affect the position even where there was an express provision in the mortgage deed that the borrower would pay any shortfall to the lender. The claim for the principal sum was therefore subject to a limitation period of 12 years from the date on which the lender’s right to receive the money accrued, pursuant to Section 20(1) Limitation Act 1980. The claim for interest, however, was subject to a 6 year limitation period pursuant to Section 20(5) of the Act.
Lenders should be aware that, although the limitation period in respect of a mortgage is 12 years, a claim for interest must be brought within 6 years. In any event, lenders would be advised to ensure that any claim is pursued expeditiously.
For further information, please contact Janet Currier at janet.currier@cms-cmck.com or on +44 (0)20 7367 2326.
