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Liability for Mortgage Shortfalls

By: Louise Smith, barrister - Updated: 23 Aug 2017 | comments*Discuss
 
Lender repossession borrower

When a lender repossesses a borrower’s home they have a legal duty to sell it for the best price they can get. However, a property which has been repossessed will almost certainly get a lower price than would be achieved by a homeowner. Fees, penalties and interest will already have been added to the outstanding balance on the mortgage. In addition to the mortgage debt itself the lender will recover the costs of repossessing and selling the property from the sale proceeds. If the sale price does not cover all of this the borrower remains liable to make up the shortfall.

The Approach of Lenders to Mortgage Shortfalls

Lenders often do not pursue a shortfall immediately - largely because someone who has just had their home repossessed is unlikely to have a lump sum of cash available. Therefore, the lender may take the view that there is little point in chasing the borrower for the shortfall at this stage.

How Long can a Lender Wait before Pursuing a Borrower?

For most debts a creditor can wait for up to six years before chasing a debtor through the courts. However, special rules apply to mortgage shortfall debts - a lender can wait up to 12 years from when the debt first became due. The brutal logic behind this is that it gives the borrower time to get back on their feet financially so that they are more likely to be able to pay the debt.

The question of when the mortgage debt actually became due has been argued at some length in the courts. The starting point is that the mortgage debt became due at the point when the lender was first entitled to repossess. In most cases that will be the first time in the history of the mortgage that the borrower was in arrears for the equivalent of two monthly instalments. This means that the 12 year period may have started many years before the property was actually sold.

How much can the Lender Recover from a Borrower?

In addition to claiming the shortfall on the mortgage debt, the lender may also claim up to six years’ worth of interest on the shortfall. This can make a huge difference to the likelihood that a borrower will be able to pay off the debt. For example six years’ interest at 10 % added to a £25,000 shortfall makes a total debt of £40,000. Any legal costs incurred by the lender in trying to recover the shortfall will also be added to the debt.

Defences to Mortgage Shortfall Claims

If a lender does start a claim for a mortgage shortfall there is often little a borrower can do by way of defending the claim. The most common defence is that the lender left it too long to start the case. If this point is raised it will be up to the lender’s solicitors to prove that the case was started within 12 years from when the debt became due. This may involve a careful analysis of the history of the mortgage account. If the judge is satisfied that the case was started in time lenders usually obtain a judgment with little difficulty. A common problem for borrowers facing this kind of claim is that they are likely to have long-since destroyed or disposed of documents relating to the mortgage.

How to Avoid being Taken to Court for a Mortgage Shortfall

It may be possible to come to some sort of agreement with the lender to clear the debt before they decide to take the matter to court. Some lenders will agree to accept a lower amount than the actual debt if the borrower can make a lump sum payment. Lenders might also agree to accept monthly instalments towards the debt – especially if the borrower is prepared to offer a charge over their current property.

The law on mortgage shortfalls means that borrowers can find repossession coming back to haunt them long after they thought they had got over it and moved on with their lives. Having judgment entered for this kind of sum can be devastating and could even result in bankruptcy. One option is to hope that the lender decides not to pursue the debt - but 12 years is a very long time to keep one’s fingers crossed.

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My home was repossessed in 2013.I went to court for the mortgage then back to court for three secured loans. The house sold with the mortgage paid and what was left was apportioned to the loans. This left outstanding balance's on them.I haven't had a letter to request this but only know as I sent a SAR letter.I received information that was held etc on all the loan accounts it states written off balance nil.There was a money judgement to be restored at liberty on all the court papers. Could the lender still request the money and are secured loans statute barred 6 years or 12 years or this doesn't apply because of the money judgement. I was told by step change that they are unsecured so I presume the Deed signed with the mortgage is no longer valid. My finances haven't improved if anything they are worse. Any answer's please
Iib - 23-Aug-17 @ 5:42 PM
2011 in Administration.Mortgagee took possession.Sept 2011. Failed to sell business until 2015. Sold for peanuts, after premises fell into disrepair over this period of 4 years.Arrears/charges amounted to over £700,000.Shortfall of £450,000 on sale.This was charged to another modest property of ours worth £105,000.Now an Order for Sale - High Courts - Judge then asked the mortgagee for a List of Issues/Directions, for the CMC Hearing.It appears that the Judge has turned the case around to that of negligence.I did defend our case as to the mortgagees failings in the sale of, the resolving of land dispute, to which the Administrators had just about resolved. The failure to upkeep the Centre - they possessed the Centre in pristeen condition.What are the chances that we could win this case, as at an earlier Hearing Interim Charging Order, the Judge said we had a case for compensation.Final Charging was made later - Our case is on the 27th |June, and just to give us more confidence about this hearing. Your expertise appreciated
Kingy - 21-Jun-17 @ 5:17 PM
leebo - Your Question:
If you are on a low income, by law, do the mortgage companies have to accept what you are only able to pay them. I had my house repossessed in 2014. I have a job but am currently couch surfing as my credit rating is very poor and I cant rent. Mortgage company is chasing me. My mum died Christmas 2013. House repossessed a few months later. I have managed to pay back nearly £10,000 in less than 2years,but wouldnt have been able to do that without the over time. That finishes this May, when another firm takes us over. I'm not prepared to go through another 18months like that again. My shortfall is just under 4000. Can I just say to them, heres £100 every month, thats it. Or will they try to get more out of me ?

Our Response:
That's up to the lender and will also depend upon how much you borrowed and have already paid. Contact them and tell them you are willing to pay and have demonstrated that,they should be willing to negotiate but they don't have to accept what you offer them.
HousingRepossessions - 18-Apr-17 @ 10:44 AM
If you are on a low income, by law, do the mortgage companies have to accept what you are only able to pay them. I had my house repossessed in 2014. I have a job but am currently couch surfing as my credit rating is very poor and I cant rent. Mortgage company is chasing me. My mum died Christmas 2013. House repossessed a few months later. I have managed to pay back nearly £10,000 in less than 2years,but wouldnt have been able to do that without the over time. That finishes this May, when another firm takes us over. I'm not prepared to go through another 18months like that again. My shortfall is just under 4000.Can I just say to them, heres £100 every month, thats it . Or will they try to get more out of me ?
leebo - 15-Apr-17 @ 2:52 PM
Myself and my husband voluntarily surrendered our house 1 year ago.It's old and there is an overall shortfall of £100000.We have a financial advisor handling negotiations for us and are paying them a fee.We paid a percentage when the process started and rest to be paid on completion. We offered £9000 to shoosmiths (bank's solicitor) they have rejected this.Our team have said they don't think they will settle this year and are talking about us taking an IVA which i do not want to do.We have 2 young children and hope to be able to buy again in the future as renting is very expensive. If we are liable for the shortfall and have acknowledged the debt, can we be chased for this for the rest of our lives? We want to pay a settlement but cannot afford anymore than the money that was rejected.Is there anything we can do?We live in Northern Ireland.
Cr - 13-Apr-17 @ 11:16 AM
Cleo - Your Question:
My house was repossessed whilst I was abroad. When I got home the locks had been changed but I opened a back door and accessed the property where I still am. What may next. I have an application to the Court to set aside the decision to evict me.

Our Response:
We don't have the full details of your repossession etc, so it mgiht better to take all the information to a Citizen's Advice Bureau. Making the application to the court was a wise move. If you have the means to pay up any arrears and so on, this judge may look favourably on it.
HousingRepossessions - 7-Jun-16 @ 12:33 PM
My house was repossessed whilst I was abroad. When I got home the locks had been changed but I opened a back door and accessed the property where I still am. What may next. I have an application to the Court to set aside the decision to evict me.
Cleo - 5-Jun-16 @ 6:00 PM
I was sold a misold mortage why do I sill have a shortfall can I have itcancel and all pay made on shortfall paid back
dink - 19-Jun-14 @ 11:07 AM
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