What Is a Mortgage Shortfall?
Often people think once their house has been repossessed or they have handed the keys the keys to the house back to the lender they are not liable for any amount by the mortgage lender. However people find themselves being asked to pay large sums by their mortgage lender if the house is sold for less than the outstanding mortgage. The debt that remains is usually referred to as a mortgage shortfall. This also includes the monthly installments and interest that has been added on to the debt until the house is sold, plus legal and estate agents' costs.
Debt Acknowledgement and Payment
As with any unsecured debt the lender can pursue to claim any outstanding debt owed for up to 12 years. So you can still be asked to pay back a shortfall a long time after you left the house.
The 12 years period starts from either:
- Acknowledgment - the last time the lender contacted you and you agreed in writing that you owed the money
- The last date you or someone else, e.g. who owned the house jointly with you, made a payment to the lender
The lender also has six years to start recovery action on any interest that has been added to the debt.
The Financial Services Authority advise on The Mortgage: Conduct of Business Rules say that a lender "must deal fairly with any customer who has a mortgage shortfall debt". If a lender decides to take action against you with reference to a mortgage shortfall they must ensure that you are told about this in writing, within six years of the date of sale of the house. If the lender does not do this, you can complain to the Financial Ombudsman Service.
If you do complain the lender can argue that they attempted to make contact and that this counts as 'contact', even if you did not receive the letter.
What Should I Do?
Work out when you last paid or acknowledged the debt and when the house was sold. If this was over 12 years ago you can argue that the debt is unenforceable under the Limitation Act 1980.
If it is six years or more since the house was sold without any contact from your lender, you can argue the CML policy with your lender.
Options for dealing with mortgage shortfalls are complicated and you may need to contact us to discuss which option applies best to your personal circumstances.
Contact the free national support line for advice on 0845 055 8152
Joint Mortgage Debt
If the mortgage relates to a debt joint with n ex partner, you should check what action the other borrower has taken. If the other joint borrower acknowledges the debt it doesn't affect you but if they have made a payment the limitation period starts running again for both of you from the date the last payment was made.
Be Cautious
When writing to your lender you should be very careful as not to acknowledge the debt at this stage. As this will cause the start time running again and you will not be able to argue that the lender is out of time to pursue you for the debt. If you have not heard from your lender for nearly twelve years, then, phone us for advice before contacting your lender. You should ask for details of:
- Exact sale price of the house;
- Valuations details made on the property;
- How the additional interest to the time of the sale and since the sale has been calculated Solicitors', estate agents' fees or court costs
If your lender does not reply with the breakdown request for the mortgage shortfall, you should write to the lender and request they send you all the information held by them on computer to do with the mortgage account. This request should be made under the Data Protection Acts 1984 and 1998 and refer to the 'right of subject access' under the acts.
Negotiating Repayments
If you agree that you owe the money to the mortgage lender and you are satisfied that they have contacted you within the correct time limit, then there are ways to come to an arrangement with your lender.
As a mortgage shortfall debt is an unsecured debt so is treated in the same way as a personal loan, overdraft, store card or credit card.
Debt Plan Direct we can calculate a personal budget and negotiate a pro-rata agreement by explaining your circumstances and making a reasonable monthly offer of repayment..
We could also negotiate a lump sum amount in full and final settlement of the outstanding shortfall. If lenders think this is a reasonable amount and that they are unlikely to receive any more by pursuing the matter further, i.e if you have no assets etc then they are often willing to consider a one off payment as an end to the matter. You must ensure that the lender has accepted this amount in "full and final settlement". Always try to obtain this in writing.
If your house has been repossessed and you are now in rented accommodation, we will explain to them that you no longer have any assets such as a house and outline your exact financial position. Debt Plan Direct will help persuade your lender that there is little point in pursuing you for the debt.
If you can afford only a small offer of payment per month and have no assets then you might want to suggest that they don't pursue the debt as you are never going to be able to pay it back. Mortgage and insurance companies do not always take action to recover the debt when they can see it is pointless for them to do so (e.g. write off the debt).
Please call us on 0845 055 8152 or submit your details online if you are affected by any of the following:
