What is a mortgage shortfall / Negative Equity?
In some situations where you have had your home repossessed, or handed back the keys to your mortgage lender, you may later be told you still owe money. This happens when the amount your home is sold for is not enough to pay the outstanding mortgage and any secured loans.
Money you still owe to your mortgage or secured loan lender in this situation, is called a “Mortgage Shortfall”.
Sometimes the debt includes the monthly instalments and interest added to the debt while your home is being sold. Until the house is sold, you are liable for these costs, as well as legal and estate agents’ fees.
How long can I be pursued for the debt?
The Limitation Act 1980 sets out the rules on how long a creditor (who you owe money to) has to take certain action against you to recover a debt. If, by law, your creditor has run out of time the debt is ‘statute-barred’.
There has been some confusion in the past about mortgage shortfalls and the Limitation Act. However, the Court of Appeal has now decided that the following limitation periods apply to mortgage shortfall debts.
If you owe mortgage capital
Mortgage capital is the money you originally borrowed. For this part of a mortgage shortfall debt, the lender has 12 years to use court action to make you pay. This is under section 20 (1) of the Limitation Act.
If you owe interest
Mortgage interest is the interest you were charged to borrow the money. Your lender may also charge interest after your home is sold. For this part of a mortgage shortfall debt, the lender has six years to use court action to make you pay. This is under section 20 (5) of the Limitation Act.
Your debt will probably be capital.
The money from the sale of your house will usually be taken by your lender to pay interest before capital. So, unless the sale price is not enough to cover the outstanding interest, the shortfall debt will be all capital. This means that the 12-year limitation period will apply.
Use of bailiffs
If your lender took you to court within the limitation period, and a county court judgment (CCJ) was made for the debt, you cannot use the Limitation Act. If your CCJ is more than six years old, and the creditor wants to use bailiffs or High Court Enforcement Officers, they must first get permission from the court. Contact us for advice.
Mortgage Shortfall Settlements
Many lenders will now consider allowing property in negative equity to be sold at it’s current market value and negotiate a settlement on the shortfall – this may be a lump sum (generally between 10 and 15% of the shortfall) or regular monthly payments over a fixed period.
Debt Free Ireland will be pleased to help negotiate a shortfall sale and settlement in respect of your property and the associated mortgage account(s).
We will endeavor to:
1. Obtain permission from your mortgage lender(s) to sell the property at a shortfall price and
2. Negotiate a shortfall settlement with your mortgage lender(s)
Whilst negotiations are ongoing Debt Free Ireland will review your mortgage and any associated secured loans and your current and past credit commitments for potential Mis-selling claims and will endeavor to pursue compensation claims on your behalf. The claims may include the Mis-selling of payment protection insurance, unsuitable mortgage advice leading to financial loss, professional negligence, your mortgage lender not treating you fairly and unfair fees.
- What is Debt Free Ireland?
- Negative Equity
- Mis-sold Mortgages
- Mis-sold PPI
- Mis-sold Investment & Savings
- Debt Restructuring