Mortgage debt after repossession

After your lender repossesses your property they have a legal duty to sell the property for the best possible price. The property is usually placed on to the property market as soon as possible and your lender attains independent, expert advice on the price it ought to be sold for and the best way to sell the property.

Should the property sale result in a surplus once the money owed to the lender is paid and any other secured lender has been repaid, then the surplus is given back to you. Your lender ought to notify you of the surplus. If for some reason you are not contactable, the court or your lender can keep the money until you are contacted.

However, should the sale proceeds not be sufficient to pay off the money you owe your lender, there is a "shortfall debt" whereby you remain in debt to your lender after repossession.

Interest is normally charged on your mortgage loan until your home is sold and any shortfall repaid. Other costs will also be charged to your mortgage account, including estate agents' costs for selling the property as well as legal costs.

What can the lender do should there be a shortfall debt?

Should there be a shortfall, your lender usually contacts you immediately after the sale of the property to inform you that that this is the case. They will also inform you that the shortfall debt can be pursued by another company.

Should interest be charged on the shortfall debt, your lender will send you frequent, written financial statements updating you on the amount you owe. It is crucial for you to inform your lender of your new address upon leave the property in order that you receive the statements.

The course of action your lender takes are dependent on the circumstances. A lender could wish or not wish to chase repayment of the shortfall debt. However, if they are going to chase repayment they ought to notify you within six years.

How long after the repossession can lenders chase debt recovery?

In England, Wales and Northern Ireland, a lender has 12 years legally to contact you to commence the process of seeking repayment of a shortfall debt. This can period is normally 5 years in Scotland.

The majority of lenders get in touch with you quite soon after repossession to attempt to agree to a manageable pay to repay the entirety of the debt or part of it.

Lenders who are members of the Council of Mortgage Lenders voluntarily agreed from 11 February 2000 to commence action for a shortfall within six years of the sale of a repossessed property. Should your property have been repossessed and sold more than six years ago, and your lender not contacted you to recover any outstanding debt, you are not going to be chased for the shortfall. In Scotland, lenders commence recovery action within five years.

Do these time limits apply to each case?

The new time limit is not going to affect you if:

  • you already have alternative payment arrangements for the shortfall debt;
  • or, you are already in touch with your lender, even if that initial contact was made by the lender after six years from the date of the sale of the repossessed property.

The six year limit only refers to commencing recovery action and is not applicable to a lender's ability to recover the shortfall debt over a longer period of time. This time limit is not applicable if there is any evidence of mortgage fraud.

After the sale of a repossessed property, lenders can find it difficult to contact former borrowers to inform them of any surplus money or shortfall debt. Should this be the case, your lender can use multiple methods to identify where you are presently living. They can include using tracing agents.

Should your lender or a third party agent appointed by your lender attempt to contact you in writing or by telephone to discuss repayment of the shortfall, and you opt to ignore them in spite of the fact that the contact is being made at your new address, your lender will deem the contact to have been made within the six year limit. Should you be unclear whether or not the contact has been made within the six year period, your lender can tell you.