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Mortgage Shortfall Fact Sheet
Most people often think that once they have lost their property to a mortgage lender, then their liability to the debt ends. This is not the case if the house is sold for less than outstanding mortgage. This includes the monthly instalments and interest, and is referred to as a mortgage shortfall. Your mortgage lender can try to pursue you for the debt for up to 12 years.
Most debts can only be pursued for up to 6 years, however under the Limitations Act it extends to 12 years for mortgage lenders. This time period runs from the last time the lender contacted you, and you agreed that you owed the money. Your lender has 12 years from the last time a payment was made on the account, or you acknowledged the debt to start action to recover the monies owed on the mortgage.
Council of Mortgage Lenders Policy
If your lender is a member of the Council of Mortgage Lenders (CML), then you could argue that the debt should have been pursued within 6 years. This is due to the Council of Mortgage Lenders (CML) not yet changing their policy on recovering mortgage shortfalls, in light of The Court of Appeal decisions. The CML states that anyone whose property was repossessed and sold, and who has not been contacted by their mortgage lender within six years of the sale, should not be asked to pay anything further. You should argue that it is unfair to chase for the debt after 6 years, and explain that by them being a CML member they have commitment to fair and sympathetic treatment for people for whom possession cannot be avoided.
Joint Name Mortgages
If had a joint name on your mortgage, you must check what the other party has done. If they have acknowledged the debt it won’t affect you , however; if they have made a payment then the limitation period starts running again for both of you.
Requesting Information about the Debt
IMPORTANT – If you are contacted by a lender then you should be sure to ask for details of the debt, but do not acknowledge the debt at this point. You should request info such as; exact sale price for the property, details of valuations on the property, calculated interest and solicitors or estate agent fees.
If the lender refuses to send you the details of the debt, then you should write a letter outlining that you are requesting this information under the Data Protection Acts 1984 and 1998. Lenders usually charge a fee of £10.00 for supplying the information. If the lender still does not co-operate, then you can contact the Information Commissioner who will chase it up with your lender and can serve an Enforcement Notice on them.
What if you had Mortgage Indemnity Insurance against the Property?
Mortgage Indemnity insurance is insurance that covers the mortgage lender against a loss. You should firstly check to see if your lender has made a claim on any insurance available. This could vastly reduce the amount you would owe to your lender, however; insurance companies could ask you to pay back the amount that they give your lender. Usually mortgage indemnity insurance only covers the lender and not the borrower.
Disputing the Amount being Claimed
In some cases it is possible to dispute the amount that is being claimed by your lender, this is usually if:
- You can prove that the property was sold for under the market value.
- The house was not marketed to the best of its potential which resulted in a loss.
- You had previously arranged a sale, which was refused by your lender, then after repossession the house was sold for less.
- The house stood empty for a very long time. In this case you could argue that the mortgage company should have rented it out.
- Your lender decided to leave the property empty and not sell it. If this has happened then you may have an argument for asking the court to order a sale.
If you are looking at negotiating repayments, then this would be treated like any other unsecured credit debt. You should firstly create a personal budget, and work out your current income and essential outgoings. If you feel that you can’t afford to make payments, then you should contact your lender in writing; enclosing a copy of your personal budget.
You can also explain to your lender that there is no point trying to chase you for debt if you are living in rented accommodation, and outline that you do not have any assets. If you can’t afford small payments per month, and have no assets then you should explain that that they shouldn’t pursue the debt, as you are never going to be able to pay it back. If they think that it is pointless then some mortgage companies will sometimes stop action to pursue the debt. Below is a sample letter to request to your lender to write off the debt.
Sample Letter A
Your name and address
Account info (….…..)
Further to my recent letters I enclose a copy of my personal budget outlining my financial circumstances. Please be aware that my outgoings are more than my income and I am currently experiencing financial hardship.
Due to this I would be grateful if you would consider writing off the outstanding debt, as at present my circumstances are so bad that I cannot realistically maintain payments of any kind. I understand that under the “FSA Mortgage Conduct of Business Rules” you are not required to recover a mortgage shortfall debt where it is considered unviable to do so. Please take the following information into account upon making a decision. (Advice of any special circumstances that you want the creditor to take into account. e.g. illness, disability, age etc… With this include proof.)
I am sure that you can see that my present circumstances are unlikely to improve in the future, so I would be extremely grateful if you would seriously consider my request for the debt to be written off.
If you have no long term prospect of clearing the full balance then it may be possible to offer a part payment in the form of a lump sum in a full and final settlement. If this can’t be paid up front, then it could be done in instalments, e.g. to pay £1,500 in full and final settlement over 2.5 years at £25 per month. Below is a sample letter:-
Sample Letter B
Your name and address
I am writing in regards to the monies that I owe you. Unfortunately I am unable to offer to pay the full amount I owe (Explain your circumstances and financial situation). Although, I am able to raise £ (…..) and I want to offer this a full and final settlement of the account. This offer is made on the understanding that neither you nor any associate company will take any other action to enforce the debt in any way whatsoever.
I look forward to your reply.
What to do if your Lender Takes Further Action!
If your lender writes back refusing your offer, then they could take further action if you cannot reach an agreement. For example you could be taken to court and sued. You lender could also threaten to make you bankrupt. If you have no assets or no way of paying the shortfall debt off, then it could be an option for you to make yourself bankrupt. However you do have to pay £450 up front in fees to make yourself bankrupt.
Mortgage Possession Register
The Council of Mortgage Lenders has a register of everyone who has had their homes repossessed or who have handed in the keys on their home. The information may be checked if you apply for a new mortgage. It is to stop people taking out another mortgage without informing their new lender they have previously lost their property. Although it is not impossible to get a mortgage if you are on the register but it could be more difficult. Your details will be kept on the register for 6 years and will include:-
- your full name
- the date of re possession
- the address of the repossessed property
- any previous address they may have for you
- your forwarding or current address
You can request a copy of your credit file via a credit reference agency to see if any mortgage information is held, and if so what.
Financial Ombudsman Service
South Quay Plaza
183 Marsh Wall
Tel: 0845 080 1800
The Financial Services Authority
25 The North Colonnade
Consumer helpline 0845 606 1234
Council of Mortgage Lenders
3 Savile Row
020 7437 0075
01625 545 745