Mortgage shortfall debts after repossession

If the sale of your home doesn't pay off your mortgage debts, you will still owe money to your lender or mortgage indemnity insurer.

Debt after a repossessed property is sold

If the sale of your property hasn't cleared all the money you owe, your lender will contact you to ask how you plan to repay the debt.

Your lender can sell your debt to another company. You'll owe them the money instead.

You should be sent a detailed final financial statement. It should include a breakdown of all the costs involved and show any outstanding debt.

You might be able to negotiate a manageable way to pay off the shortfall.

Your lender could decide to take legal action to get back the money you owe. This has to be done within a certain amount of time, although it could be several years before your lenders starts legal action.

Get independent advice before you reply to your lender about paying your debt.

Use the Law Society directory to find legal services in your area.

Mortgage indemnity insurance

If you took out mortgage indemnity insurance when you arranged your mortgage, the insurance protects the lender not you.

If the insurance company makes a payout to your mortgage lender to cover a shortfall after the sale of your property, they'll usually ask you to repay them.

Time limits for court action

If the court issued a money judgement at the same time as the possession order, there is no time limit on when legal action has to start.

If the court did not make a money judgement, your lender has 12 years to start any legal action to recover money you owe.

The Council of Mortgage Lenders expects its members to start action within six years. Its members include all the main high street lenders.

Get advice if your lender or insurer contacts you after the six years have ended. You may not have to pay and you may be able to complain to the Financial Ombudsman Service.

Use the Law Society directory to find legal services in your area.

Repayments of mortgage debts

You may be able to repay a mortgage debt over several years.

Your options could include:

  • paying a lump sum as a full and final settlement – your lender may accept an amount which is less than you owe
  • making arrangements to pay off all or part of the debt in instalments over an agreed period
  • asking your lender to write off all or part of your debt
  • declaring yourself bankrupt

Get advice about repaying mortgage debts. An adviser can help you to work out the best way to deal with your debt and negotiate with your mortgage lender.

Lump sum payments

Your mortgage lender might agree to accept a lump sum payment as 'full and final settlement', even if the amount you offer is less than you owe.

Consider if you can fund this by selling non-essential belongings or by borrowing money from friends or family.

Get advice first if you are thinking of taking out a new loan to pay off your debts.

Get independent advice about making a formal agreement with your lender. If it's not done correctly, your debt may not be cleared and your lender may pursue you for any outstanding money.

Paying by instalments

Your lender may allow you to pay off all or part of your debt in regular instalments over a number of years. This is usually within the original term of your mortgage.

If you do this, your lender could be willing to write off part of the debt.

Do not to agree to pay more than you can realistically afford.

Writing off a mortgage debt

You can ask your lender to write off all your debt. They probably won't agree to this, unless it's unlikely that your situation will improve.

Your lender might agree to write off part of the debt if you can repay the remainder through a lump sum payment or regular instalments.


Depending on your situation, you could apply for bankruptcy.

If you apply for bankruptcy, any assets you have can be used to pay off your debts. Bankruptcy usually lasts for a year.

After this time, most of your remaining debts are written off and you will probably be discharged from bankruptcy.

Bankruptcy makes it difficult to get loans or credit in the future.

Find out more from the National Debtline about bankruptcy.

How credit ratings are affected

If you've had mortgage arrears and other debt problems, you might find it difficult to get a tenancy or mortgage.

Landlords or mortgage lenders use credit reference agencies such as Experian and Equifax to check your credit history.

Most mortgage lenders contact the Council of Mortgage Lenders to check if you have ever had a home repossessed.

To check your credit rating, write to the credit reference agency asking for a copy of the information they hold on you.

Find out more from Money Saving Expert about checking your credit rating.

You may be able to complain to the Information Commissioner's Office if the agency refuses to change information that is incorrect.

Get specialist debt advice

A specialist debt adviser can help you to work out the most realistic way to deal with your debts.

A debt adviser may be able to help you to:

  • manage your income and expenditure and work out your options
  • help you with benefits claims to increase your income
  • explain the reasons for your financial problems to your lender and/or insurer
  • explain the steps you have taken to keep your debts to a minimum
  • produce a detailed summary of your finances
  • organise and prioritise payments of any other debts you have

Contact the National Debtline for debt advice.

Last updated 31 Dec 2016 | © Shelter

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