Leaseholders find themselves victims of an antiquated law: A mortgage provider can decide to pay out thousands on your behalf and leave you to sort out the mess. Sue Fieldman reports

FLAT owners can find that their mortgage lender has handed money over to the freeholder to cover service charges and added the sum to the mortgage. This can be done without agreement, and even if the flat owner disputes the amount owed.

The lenders realise their actions can be grossly unfair, but they often have no choice. They, like the borrowers, are victims of an antiquated law that is in urgent need of change.

If you own a leasehold flat or house, you have to pay ground rent and usually a service charge. Disagreements between landlords and flatowners about service charges are an everyday occurrence.

However, if landlords think someone owes just a couple of pounds the law allows them to apply to the court to forfeit the lease. You could lose your home and your mortgage lender its security.

Ron Armstrong, a spokesman for the Council of Mortgage Lenders, said: 'The whole business of landlords being able to forfeit leases is an absolute outrage.

'We have been campaigning for years to get something done. The Lord Chancellor's Department is very sympathetic and is talking about remedial measures.'

If the borrower will not pay the service charge, then a letter from the landlord or his agent to the lender threatening forfeiture of the lease often provokes immediate payment from the lender, who can then add the payment to the borrower's mortgage account.

It is left to the borrower to sort out the mess and get any disputed money back from the landlord.

Mark Avis owns a converted leasehold flat in Eastbourne, East Sussex. He has had problems agreeing the amount of the maintenance charge with the managing agents, and is unwilling to pay until the matter has been resolved.

Out of the blue he recently received a letter from his mortgage lender, Abbey National. 'The managing agents had written to the Abbey,' Mr Avis said. 'Abbey's immediate response was to write to me giving me seven days' notice that they were going to add pounds 2,350 to my mortgage account - the full amount in dispute.'

Abbey told Mr Avis the payment would be made 'to avoid legal action' and asked him to contact it to explain the situation.

Mr Avis immediately instructed solicitors. Abbey has agreed not to pay out until the matter is resolved.

Mr Avis said: 'Imagine you don't pay your milk bill. Will that be added to your mortgage account if the milkman writes to your building society? My dispute will now be settled by solicitors, incurring further expense.'

A spokesman for Abbey National said that seven-day letters were sent to impress upon the borrower the urgency of the situation. But what if a borrower did not reply - seven days is, after all, no time at all during the holiday season. Would Abbey still pay regardless?

'There is no hard and fast rule. We take a view on each case,' the spokesman said. 'But it could be very serious for us and the borrower if the lease was forfeited.'

Abbey does appear to try its best to tread the fine line between getting information from the borrower on why payment has not been made and avoiding the threat of legal action.

Other lenders pay up at the drop of the landlord's letter.

Mr Armstrong said: 'The guidance to our members is to find out from the borrower what is going on first of all. But it may be an emergency and may not be possible to do it.

'The lenders do have the legal power to pay without telling the borrower. They cannot risk losing their security.' Until the law is changed and the threat of forfeiture is removed, John Samson, property partner with the solicitors Nabarro Nathanson, advises that leaseholders should take preventive measures.

As soon as there is an inkling of a dispute about service charges write to your lender, tell it what is going on and that it is not to pay any money direct to the landlord. If it does it will be at its own risk and is not to be debited to your account. You should also write to the landlord and offer to pay the disputed money into a joint account in the landlord's name.

If court action seems likely, see a solicitor immediately. Mr Samson said: 'Get him to write to the lender to say that he is protecting your and their interests against forfeiture. That should keep the lender quiet and allow you or the solicitor to get on and try to sort out the disputed amount.

'Forfeiture sounds drastic, but swift legal action almost invariably gives you total protection from losing your home.'

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