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There's no "grace" in allowing debts to spiral

RBS chief executive promises six-months grace for struggling homeowners - Telegraph.

The least enjoyable part of my otherwise delightful career was, as a young lawyer, assisting in the enforcement of mortgages for a bank. I took evidence from debtors under oath, questioning them about their outgoings so as to assess their ability to keep to a revised payment schedule. I applied for eviction orders and handled correspondence with local housing authorities, so we could show the court the defendant had somewhere to go.

There was some fun, even in this dismal work. I liked finding creative ways to serve writs on "missing" defendants (who were usually as close to home as "missing" Shannon Matthews). I had one writ served in a bunch of flowers on a lady defendant's birthday. Though she had phoned the bank to claim, implausibly, that she had run away to Zimbabwe, she came to the door for her flowers. We had another served on a rock drummer while he was on stage (the only time we could be sure where the useless, feckless addict would be). The worst moment of my career was finally evicting an old lady who had been foolish enough to guarantee her son's business loans. I remember having trouble concealing my tears from the court. The son was nowhere to be seen. The debt had spiralled from the relatively trivial sum she had guaranteed. I will never forget her face.

What I mostly remember from those days was the extent to which my client would lean over backwards to avoid court proceedings and how weak it was in bringing them to their inevitable, unpleasant conclusion. Time after time, I observed the effect its timidity had on the debtor - and it was never good. Once someone can't pay, the operation of compound interest on unserviced debt drives it upwards. Combine that with a housing market spiralling downwards and you end up with debtors who not only lose their homes, but are left with unnecessary residual debts. Debts, which would never have existed were it not for the bank's "grace" and "mercy."

If, as I predict, the average value of homes mortgaged to the RBS will fall by a further 30% during this 6 months grace period, they will be doing themselves and their borrowers no favours. Therefore, if you find yourself in this situation, I advise you NOT to accept the "grace" unless the bank also agrees to suspend your interest payments. Otherwise, it will be far better to get out, hand back the keys and ensure the house is sold as quickly as possible. It may feel wrong, but amid all this talk of "toxic" debts (as if other debts were somehow nourishing) it is well to remember that all unserviced debt is "toxic." You will do yourself no favours by putting off the evil hour. Face facts, act on them, and begin to rebuild your life. Good luck to you.