Repossession debt

House repossession debt / mortgage shortfall claims

Having a house repossessed is a very distressing and eventful occasion. It is not helpful when solicitors or agents pursue the borrower on behalf of the lender, many years later, in some instances up to 12 years after the event claiming a shortfall following the sale of the property. This initial claim can run into tens of thousands of pounds.

If contact is made you do have options, you have a choice between either refusing to pay anything and rely on the outcome of any legal proceedings that may well begin, or negotiate a settlement.

With skilful negotiation often 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 you may have and your monthly disposable income as this may well reflect upon the amount required to settle. It is important to note that if you have a partner then that person may well be entitled to a share of any assets that creditors may well try to claim from you, particularly any shared equity in your home.

Points to bear in mind when deciding what option to go for:

1. Was your house sold below the market value?
2. Was the sale through reputable estate agents or auctioneers?
3. 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.
4. If you decide to settle on am amicable basis then ensure that the MIG 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.

Mortgage Indemnity Guarantees (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. ...