Mortgage Shortfall Debt Survey

Independent Banking Advisory Service

Mortgage Shortfall Debt Claims Survey

IBAS carried out a year long study of 4,259 customer’s with Mortgage shortfall debt claims that had followed a UK home repossession during the last recession. This survey is probably the only independent information available on the subject of mortgage debt problems which became UK Home Repossessions or family Home Repossession. It provided us with knowledge on how lenders evaluated voluntary home repossession or forced UK Home Repossessions and whether Mortgage Shortfall Debt claims varied with the individual circumstances.

The number of customers being pursued for huge mortgage shortfall debt after mortgage possession was increasing, whilst unacceptable tactics were also being employed in seeking repayment. Mortgage Shortfall Debt claims from Mortgage Shortfalls from UK Home Repossession/s ranged between £8,000 and £110,000 in our study averaging £31,200 and equating to a total figure of almost £104 million.

Lenders often made no contact for many years following a repossession. Having built a new life, customers were devastated to find that they faced fresh proceedings to repossess for a second time in order to satisfy an aged mortgage shortfall debt claim. *see case study 1

Lenders use the benefit of the law to increase the debt, whilst lack of any contact, lulls the customer into a false sense of security.

The sudden shock of being confronted with a huge past mortgage debt bill years later is terrifying. Frequently the repossessed property has been sold at ‘knock down’ price, creating an immediate mortgage shortfall debt. Coupled with enormous sums of interest, mortgage shortfall debt is often doubled or trebled. *see case study 2 and 3

Bullying and intimidation tactics are common and lenders agents use unreasonable methods to harass and threaten customers.

Threatening letters demand customers to “ring within 24 hours”. Frequent telephone calls and debt collector visits at work and home are designed to add further pressure. *see case study 4 and 5

Despite a six year voluntary Code, lenders continued to chase customers outside this time. We perceived a hardening of attitude, with lenders displaying increased attempts to chase shortfall debts, often ignoring the six year Code. *see case study 6

Lenders have employed the services of unethical legal teams, to pressurize customers into repayment schemes.

Under such extreme pressure, customers unwittingly agree to repayment plans which they have no realistic prospect of maintaining. *see case study 7

Please Note: General collection procedures employed by lenders remain as tough today as at the time of our Mortgage Shortfall Debt survey. But, new case law has provided lenders with increased options - the most important being twelve years in which to commence action to recover a mortgage shortfall debt. The six year code mentioned above in our survey cannot be relied upon any longer as a 'defence' to a mortgage shortfall debt claim.

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CASE STUDIES

1. RR had his home in Cirencester repossessed by UCB in January 1994. He was not informed of any mortgage shortfall claim until June 2000, when he was served with a Court summons for £32,641. Despite the first contact being outside the six year Code, the Judge granted UCB a Charging order on the new home RR owned jointly with his new partner. In order to prevent repossession for a second time, IBAS negotiated a full and final settlement and removal of the charge.

2. Following redundancy, MS’s Bedfordshire home valued at £55,000 was repossessed by Bradford & Bingley in February 1992 and sold for £29,000. In 1996 he was pursued for a mortgage shortfall debt claim of £44,000. Then a new Court summons was issued, claiming £72,551 - an increase of 64% on the previous figure. The lender claimed this was due to interest. IBAS assisted MS with his defence to the action.

3. Following separation from his partner in 1996, DD could not maintain the mortgage payments on his home. He took immediate action, had his home valued at £32,000 and put it up for sale. However, Nationwide immediately repossessed and sold the property for £8,000 less than the market value. They made no contact with the customer until November 2000. By this time the claimed shortfall figure had inflated to almost £38,000 which they demanded immediately. IBAS negotiated a full and final settlement.

4. Five years after repossession and divorce, Milton Keynes mother MP remarried. Within weeks she received demanding letters from Abbey National, sent via the builders of her new home. This created immense stress as MP entered hospital for life threatening brain surgery. Despite this, Abbey National sent debt collectors, who called as often as three times a week, demanding £37,000 for a shortfall debt claim. Within weeks of being passed the case, IBAS negotiated a full and final settlement to conclude the matter.

5. SC’s London home was repossessed and sold by Halifax in March 1995. She heard nothing from Halifax until October 2000, when she received a letter via her employers address. Another arrived at home the following week demanding immediate payment of a £28,333 mortgage shortfall debt. She was pursued relentlessly for several months with demands for payment and personal financial details. IBAS negotiated a full and final settlement.

6. AS from Northamptonshire assisted their daughter with the purchase of her £67,000 home. It was repossessed by Bradford & Bingley in 1993. They heard nothing until July 2000, when B&B sent them all demands for a shortfall claim of £33,463, but refused to provide details of the sale. Under pressure from IBAS, B&B stated that the sale took place in April 1994 - Bradford & Bingley mortgage shortfall debt claims were the subject of a complaint by IBAS to the OFT - go to OFT Complaint

7. After RS’s business collapsed, their Plymouth home valued at £70,000, was repossessed and sold in March 1992 for £42,000. National Home Loans immediately pursued them for a mortgage shortfall debt claim of £28,376. Relentless pressure was placed on them by the lenders agents to pay £200 per month. Reluctantly they agreed monthly repayments of £150. Struggling to make payments they approached NHL to discuss a reduction of monthly payments. NHL did not respond, but instead issued a Court claim. We negotiated to reduce payment.

Is your UK Home Repossession case similar to one of our case studies?

Are you being pursued for a debt claim following a past home repossession?

Do you want to resolve it?-

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Independent Banking Advisory Service (IBAS) is a national, independent, non-profit, unique specialist banking customer membership organization which resolves banking complaints and disputes and which has campaigned on UK Banking customer issues since 1992. We provide bank and banking assessment, analysis, bank comment and content for BBC TV News, ITV, Radio and national newspapers, keeping many serious banking issues 'alive' - see Bank News 2008