The 2007-2008 financial crisis caused anarchy across the world. Many people lost everything, including their livelihoods and homes. Although it was a wake-up call for many industries, the long-term effects have been felt in the years since. This has resulted in people having their homes repossessed when they cannot make mortgage payments. One question that’s frequently searched is ‘house repossessed and chasing me for debt’. We take a look at the key information behind this type of situation, as well as what you can do about it.
When can they repossess your house?
The prospect of losing your home can seem entirely terrifying. However, it’s a fairly long process that has many different steps. So, even if you’re struggling to pay your mortgage, you might not get evicted immediately. The lender has to start court proceedings, which is generally an eight-step process:
- You go into arrears on your mortgage payments. Here, the lender will contact you about your missed payments asking how you’ll repay it.
- The lender starts court action if you cannot agree a repayment plan. Usually, this is a last resort.
- You’ll get contacted by the court who will send documents as well as request some of your own.
- A judge will review the case to see if it needs a full hearing. You won’t have to attend at this stage.
- If the judge decides you need a court hearing, it will be scheduled, and you’ll need to attend.
- The court will make a decision, either granting a repossession order or a suspended order, meaning you’ll have to make regular repayments.
- If the court grants a repossession order, your lender can arrange for the bailiffs to evict you.
- Once you’re evicted, the lender will sell your home. They will collect what you owe, and anything left over goes to you.
How much notice do I have?
It takes a reasonably long time for a lender to evict you from your home. For a start, they need to give you a reasonable chance to arrange any missed payments before they start proceedings. Once a lender starts proceedings against you, you’ll have at least 3 weeks’ notice of a judge reviewing your case.
Your possession hearing could then take a while to schedule. The date depends on a variety of factors, which can give you time to sort things out. However, once possession order is made against you, you could have as little as 4 weeks before you’re evicted. Once a lender has notified the bailiffs, it can take as little as 14 days for them to repossess your house.
What is a mortgage shortfall?
After your home has been repossessed, your mortgage lender will then sell the property. However, there is a chance that you still owe money even after this process takes place. Usually, this means that your house is sold for an amount that is lower than your outstanding mortgage and any secured loans. This is known as a mortgage shortfall.
Often, this leftover debt includes things like the monthly instalments and interest payments added to your debt during the process. Unfortunately, until the house sells, you’re liable for these costs. In addition, you might be responsible for any legal and estate agent fees.
Is there a time limit?
So, if your house has been repossessed and they’re chasing you for debt, you might be wondering how long they have to secure it. There are some time limits that apply to these debts, as outlined in the Limitation Act 1980. If your creditor has run out of time to claim the debt, you may not have to pay it, as it’s what’s known as statute-barred.
However, the length of time on your debt depends on the type of money you owe:
This is the money that you originally borrowed to purchase your property. Under section 20 of the Limitation Act, your lender has 12 years to contact the courts and make you pay any debt you have of this nature.
This is the interest on the mortgage capital you were charged to borrow the money. This interest can also apply after your home is sold. However, under the Limitation Act, your lender only has six years to pursue the debt.
My house is repossessed and they’re chasing me for debt – what should I do?
So, if you’re in the unfortunate position where your house has been repossessed, and they’re chasing you for debt, it can be a scary thing to have to face. However, there are some steps that you can take that can help you deal with the problem:
Make an offer
One of the things you can do is negotiate with your lender. If you have a large mortgage shortfall and only a very small amount of income, you should explain this to them. They might agree to a repayment plan that helps you manage your debt better. In some extreme circumstance, they may agree to stop pursuing the debt, particularly if there’s little chance of you ever paying it back.
If you cannot afford to pay this leftover amount, ask your lender not to pursue your mortgage shortfall using our free letter template.
Debt relief order
If you have debt under £20,000 and a spare monthly income less than £50, you might be eligible for a debt relief order. This means you don’t have to make payments for a year and cannot be chased for money, provided your situation doesn’t improve. At the end of that year, anything remaining is written-off.
If you owe over £4,999, your lender may try and make you bankrupt. Usually, they’ll only do this if they think you have other assets that can cover the cost of your debt. However, you can also make yourself bankrupt as a last resort. Although there are a lot of downsides to doing this, it can help you clear your mortgage shortfall.
Clearly, having to deal with such a situation is stressful. If you are having a difficult time dealing with your debts, there are charities such as StepChange and National Debtline that can help. Similarly, if you need advice about your situation, Citizens Advice has a wealth of information.