House Repossession Debt - Mortgage Shortfall Claims

Mortgage arrears are on the increase and according to a recent study as house repossessions rose by 65% during 2006 with more than 1 million people resorting to using high-interest credit cards to cover their mortgage payments, leaving them at risk of eviction or repossession. This means that more and more families will soon be losing their homes which will be a very distressing and eventful occasion. Unfortunately it does not stop there. Often the borrower is not contacted until many years after the repossession, in some cases as much as 10 years after the event. This contact is usually made through solicitors or agents acting on behalf of the lender claiming a shortfall following the sale of the property. This initial claim can run into tens of thousands of pounds.

If contact is made the borrower does have options. They can either refuse to pay anything and rely on the outcome of any legal proceedings that may begin, negotiate a settlement by way of offering a reduced lump sum in full and final settlement, propose Individual Voluntary Arrangement, (IVA) or go bankrupt.

In the majority of cases a full and final settlement can be reached by paying a fraction of the initial claim. However, every case is determined on its merits, including the amount of assets, if any, that the individual may have. Their monthly disposable income is also taken account of as this may well reflect upon the amount required to settle.

Points To Bear In Mind When Deciding What Option To Go For:
• Was your house sold below the market value?
• Was the sale through reputable estate agents or auctioneers?
• Was your property repossessed more than 6 years ago? The Council of Mortgage Lenders (CML) announced a directive which came in to force on the 11 Feb 2000. Under this directive those that have not been contacted by the lender for more that 6 years from the date of the sale of the property will now not have to repay their mortgage shortfall debt. Unfortunately this is a voluntary code and applies only to new cases and not those with existing shortfall debt repayments or where the lender has already started recovery procedures.

If you decide to settle on an amicable basis then ensure that the MIG, Mortgage Indemnity Guarantee, is also included. It has been known for the lender to claim a sum from the borrower which was the shortfall that the MIG had paid out to the lender. This meant that had you settled then you have only half completed the task as the MIG can still pursue you for the amount they paid out to the lender. Therefore, establish right at the onset that the lender or the agent/solicitor is acting on behalf of both lender and MIG.

MIG is controversial, as the borrower has to pay the premium and the lender reaps the benefit. A condition lenders attach to a claim is that they must try to recover the loss from the borrower and pass it on to the insurer. MIG is taken out by the borrower, at the insistence of the lender, and is usually payable as a one-off instalment, normally when the mortgage begins. However, mortgage indemnity insurers and the lenders argue that the policies are issued to protect the lender and not the borrower.

Time Limits To Recover Shortfalls Following House Repossession
If the lender obtains a "money judgement" at the time of the re-possession hearing then there is no set time limit for recovery of the debt, however, if the MJO is 6 years old then the lender has to reapply through the Court, otherwise lenders need to abide by specified limitation rules.

Generally, they have six years in which to recover interest and twelve years for capital sums; this limitation begins when the lender was first able to issue proceedings and would be much earlier than the date the property was repossessed; or the last time any payment was made irrespective of the amount; or the last time the debt was acknowledged by the client or any agent acting on their behalf in writing.

If the debt is of a joint nature and only one of the party concerned is making a payment then the other person can be bound by the time limitation, even without their knowledge, e.g. if they were separated or divorced.

How Lenders Claim Such Large Amounts
Lenders will add interest, arrears, administration, disbursements, court fees, selling costs, advertising, locksmith, and gardener etc: Then there will be additional legal costs for the lender to defray under any settlement.

Acknowledging The Debt
Telephoning a lender just to enquire about the debt is not acknowledgement. Generally, for the time limit to start again the acknowledgement must be in writing and signed by the debtor or his or her agent.

Debtwizard's Useful Tips If You Are About To Have Your Home Repossessed.
• Try and get 3 valuations in writing just before the home is repossessed, this can then be produced many years later when arguing over how much you home was worth when it was sold.
• Take photos of the interior of the house with someone holding a current daily newspaper, you are trying to prove the house was not trashed and was left in excellent condition, the newspaper confirms the date of the photograph.
• Remember not to acknowledge or admit the debt.

This report is edited, to see the full article and other useful websites detailing how to get a valuation of your home from many years ago then visit and go to 'advice' 'repossession debt'

In the preparation of this article, every effort has been made to offer the most current, correct and clearly expressed information possible. However, it is not intended to serve as legal advice and you are encouraged to consult with professional advisor's for advice concerning specific matters before making any decision.

Return to Finance menu