Mortgage Shortfall & Negative Equity
If Your Sale Proceeds Are Less Than The Mortgage Owed
When a lender sells or auctions off your property, their primary concern is to recover the debt owed to them. If you’re arrears are very large, you have other secured loans, or if the value of the property has fallen since you bought it (negative equity) the money from the sale may not cover everything you owe. If this happens, you will still be responsible for repaying the difference. This difference is known as the ‘shortfall’.
When trying to work out if you will be subject a mortgage shortfall you should take in to account any arrears that you owe as these may be in addition to the mortgage remaining. You should also take in to account costs with regards to selling the property which include estate agent fees, Home Information Pack (HIPS), solicitor’s fees etc. all of which will add to the total debt. According to The Council of Mortgage Lenders 21% of repossessed houses are subject to shortfall.
A Word On Mortgage Indemnity Insurance
If you had to pay for indemnity insurance when you took out your mortgage, it will pay all or part of the shortfall to your lender. However, you are still responsible for the money and can be asked to pay it back after the property is sold. Your lender may take legal action on behalf of the insurance company, or the insurer can do so itself, although this has to be done within a certain amount of time and it may be possible to negotiate a manageable way to pay off the shortfall.
Repaying The Shortfall After The Repossession
You may be contacted soon after the repossession to ask how you intend to repay the debt. Once the property is sold, your lender or insurer will probably send you a detailed final financial statement. This will tell you whether any debt is still outstanding, and should include a detailed breakdown of all the costs involved. It is very important to get independent advice before you reply to any letters asking how you intend to pay off your debt.
How Will My Credit Rating By Affected
It can often be very difficult to find a landlord or lender who will provide a tenancy or mortgage to people with a history of mortgage arrears and other debt problems. They usually use credit reference agencies such as Experian and Equifax to check your credit history before they will give you a tenancy agreement or lend you money to buy a new home. Most mortgage lenders will also check the Council for Mortgage Lenders Possessions Register, which holds information about repossessions by any of its members during the last six years.
You can write or apply via the internet to the credit reference agencies asking for a copy of the information they hold on you. There is normally a small fee to pay but agency should then send you a copy of the information they hold on you within seven working days.