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House Sold For More Than the Arrears - What Happens?

By: Louise Smith, barrister - Updated: 25 Jul 2017 | comments*Discuss
 
Mortgage Repossessed Arrears

Q.

I am wondering if you can help. What happens if your house is repossessed and goes up for sale, and the house is sold for more than the arrears on the mortgage?

(K.D, 23 June 2009)

A.

If a lender repossesses a borrower’s property because of mortgage arrears the intention will be to sell the property and use the sale proceeds to clear the debt owed by the borrower. The lender has a duty to sell the property for the best price they can reasonably obtain. The lender must not simply offload the property for a price which covers the mortgage debt.

If a borrower suspected that a lender had sold a repossessed property for too low a price this could provide the basis of a legal case against the lender. Lenders may sell a repossessed property through an estate agent or at an auction. The property should be sold on the open market to avoid any suggestion that it has been sold for too low a price.

When a property is repossessed due to mortgage arrears, the whole debt under the mortgage becomes payable by the borrower. This may mean that, although the property may have been repossessed due to mortgage arrears of a few thousand pounds, the borrower is now liable for a total mortgage debt of hundreds of thousands of pounds. In addition to this the borrower will almost certainly have to pay the lender’s legal costs of taking a case to court to get a repossession order. The legal costs will usually be added to the total outstanding mortgage debt.

Therefore, when a repossessed property is sold by the lender it is important to note that the lender is entitled to recover the full outstanding mortgage debt from the sale proceeds and not just the arrears. In fact it does not stop there. The lender is also entitled to add the costs of selling the property – and any other costs they may have incurred during the repossession and sale process – to the final bill owed by the borrower.

Borrowers should also be aware that many lenders will continue to charge interest on the mortgage debt until the property is sold meaning that the final mortgage debt may be higher than the amount owed when the repossession order was made. The borrower is entitled to a breakdown of how the final debt has been calculated.

In an ideal world there will be equity in the property - so that when it is sold there will be money left over from the sale proceeds after the mortgage debt has been paid off. If there is money left over after the full mortgage debt and all other costs have been paid the balance of the sale proceeds should be returned to the borrower. If, however, the sale proceeds do not cover all of these costs the borrower will still be left owing this shortfall debt to the lender.

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I had my house re possessed in 2002 due to divorce and redundancy! I've recently received letters from 2 seperate solicitors saying I'm owed some money from this! Obviously my credit score has gone back up because of the length of time so I'm reluctant to get in touch in case I get a massive bill!
Kezza - 25-Jul-17 @ 8:35 PM
Pete - Your Question:
Sir/madam. My son has had his property repossessed, he was told by the judge to ask the lender permission to enter the property to retrieve his belongings.the lender has told my son there will be a fee of £250 to arrange this.is this correct?also my wife has a final charging on the property. Should she have been informed of a final eviction notice?many thanks in advance peter

Our Response:
HousingRepossessions - 17-May-17 @ 2:14 PM
Sir/madam. My son has had his property repossessed, he was told by the judge to ask the lender permission to enter the property to retrieve his belongings..the lender has told my son there will be a fee of £250 to arrange this...is this correct?.....also my wife has a final charging on the property.. Should she have been informed of a final eviction notice?......many thanks in advance peter
Pete - 16-May-17 @ 5:19 PM
I had my house repposessed and the monies owed to me were quite a bit There was a joint mortgage on the propertybut the other party had left over a year before the repposesion The final split is in dispute how do I get my money
Faggy - 22-Jan-17 @ 5:17 PM
My mother & father owned a home which they bought in 1964. It was eventually repossessed and sold in 1978. According to the land registry. The solicitors that were dealing with it at the time were Muscat, Nelson & Co. solicitors, based at 2 Bentinck street in London W1A 4AT. If there was money left over afte the sale. How can this be traced
Mel - 1-Sep-16 @ 12:48 PM
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