Lenders don’t actually much like repossessing properties but this does happen.
This is often viewed as a last resort solution – unfortunately, it’s one we’re going to be seeing a lot more of in the future. Repossessions basically happen when a homeowner cannot or will not make their mortgage repayments. After a period of time (and probably effort) the lender will have no choice but to take the property back.
In order to get their money back from a repossession the lender will have to sell your home. In an ideal world this will give them enough money back to pay off all that you owe them. In the real world this doesn’t always happen, especially given the current state of the housing market. So, they may well put your home up for auction and find that the sum they sell it for is not enough to cover your debts.
You may have handed back your keys here but this doesn’t mean that you have no responsibility left. If there is a repossession shortfall after the lender has sold your home then you are still liable for it. You have to pay the missing balance – only difference here is the fact that the debt you have now will be treated as unsecured finance. After all, you no longer have a property to use as security.
By law, if you do have a repossession shortfall your lender has to inform you that the shortfall exists and to lodge a claim for its payment. They have to do this within 28 days of selling your home. The letter that they send you should also give you a range of other details and information including:
- Details of the original mortgage deed.
- The address of the property.
- A description of the property.
- The names and addresses of the seller and buyer of the property.
- The amount that the property was sold for.
- How the property was sold – i.e. via auction or a private sale.
- The date that the property was sold.
The problem that a lot of people have come across during this process is the fact that lenders don’t always hold out for the full property value. Their concern is a quick sale and they will often sell repossessed properties at a lower than market rate simply to get them off their books.
But, many people have realised that this means that lenders are not achieving the potential return that they could get on a repossession sale. This potential return could, in fact, actually make the shortfall irrelevant. After all, if the property is sold at a higher cost/market value it will bring in more money which would, at the very least, reduce the repossession shortfall or see it disappear completely.
So, what can you do to prevent this happening to you? After all it’s bad enough to be chased for a repossession shortfall in the first place but it’s even worse if you know that the lender could have done something to prevent it happening in the first place. Luckily there is something that you can do in the event it does happen to you (or someone you know).
Firstly, you should have your house valued by one or more independent agents such as estate agents and/or surveyors. Asking estate agents for a valuation and then getting them to put it in writing to you won’t cost you any money. Try and do this as close to the time that you will have to leave your home as possible.
If you then do receive a claim for repossession shortfall later on down the line and you feel that your lender did make a quick sale to the detriment of the money they could have made from your property then you may have enough to make a counter-claim. If you can show that the lender did not try to sell at market value then you may be lucky and a court may be able to help you invalidate the lender’s claim.