Man who refused to pay mortgage for 15 years is granted 'squatters' rights'

Djabar Babai was told he had effectively acquired "squatters' rights" over his £250,000 detached home, as his dispute with his mortgage lender has dragged on for so long.

But although the judgment may be good news for the 62-year-old, there were warnings that homeowners who fall behind on payments could face swifter repossession action as a result.

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Djabar Babai has not paid the mortgage on his £200,000 home in Stockport for 15 years

Iranian-born Mr Babai took out a second mortgage with NatWest against his home in Heaton Mersey, near Stockport, in 1989, to cover business debts

By 1992, he and his wife Zinat had fallen behind on payments by almost £62,000.

The bank issued a formal demand - but it did not start repossession proceedings, the Court of Appeal, in London was told.

After negotiations, the father-of-two made a payment of £40 in January 1993.

However, later that year he was declared bankrupt, and no further instalments were paid.

By 2006, the debt had reached £165,000, and he faced losing the house.

But last year, trustees of bankruptcy, acting for his creditors, won a ruling at the High Court that NatWest's charge on the property had ceased.

A lender has 12 years in which to enforce a mortgage, and that deadline had passed, meaning Mr Babai had effectively acquired "squatter's rights" to stay, the court heard.

Yesterday, a panel of senior judges rejected NatWest's appeal against the ruling, even though its barrister argued it would affect many other borrowers.

Justin Fenwick, QC, said lenders "could be forced to issue possession proceedings where they would not otherwise have done so", to protect their security.

Lord Justice Mummery said the outcome of the case would be "of considerable interest to mortgagees and mortgagors in general".

"It was even suggested that the ruling could lead to vulnerable mortgagors being made homeless, when they could otherwise have gone on living in their own homes," he added.

But the judge described this as "an alarming, but unlikely prospect" and said the practical implications of the decision against the NatWest "are in danger of being exaggerated".

Twelve years was "ample" time for lenders to begin the necessary legal action, he added.

Afterwards, NatWest said it had been attempting to obtain greater flexibility in the way it dealt with borrowers who found themselves in temporary difficulties, and was considering an appeal to the House of Lords.

Mr Babai, who used to run a takeaway, is no longer required to pay his NatWest mortgage, and remains at the property - thought to be worth up to ten times what he paid for it.

But he still faces bankruptcy debts which could force him to sell.

As he owns it jointly with his wife, half of the equity that would have been claimed by NatWest passes to her, leaving his unsecured creditors to pursue the rest.

Mr Babai insisted he was continuing to pay his first mortgage, with Halifax.

He now runs another business with his daughter, thought to be involved in house clearance.

Experts said NatWest may not have launched repossession proceedings sooner as house prices were depressed in the early Nineties. If the house had been sold, the first mortgage would have had to be paid off, leaving them little or nothing.

Following the latest judgement, Mr Babai's creditors could seek an order that the house be sold, or he could pay them from his own funds, potentially by remortgaging again.

The Council of Mortgage Lenders predicted that the judgment would not affect other mortgage-holders, because it had merely confirmed an established legal position.