Mortgage shortfall debt after repossession
When a repossessed home sells for less than you owe, the gap does not disappear. Here is how it is worked out, how long it can be chased, and your options.
Applies to: England & Wales
What to do now
- Ask the lender for a full breakdown of the sale and the costs added.
- Check the dates: when the home was sold and when you were first told about the shortfall.
- Do not agree payments until you know the figure is right — ask for proof with the prove the debt letter.
How the shortfall is worked out
The lender takes the sale price and deducts the mortgage balance, arrears, interest and charges, plus its legal and selling costs, such as agent or auction fees. FCA rules require it to market the home as soon as possible and get the best price that might reasonably be paid, taking into account the market and the growing amount you owe. If there was a second-charge loan on the home, that lender may have a shortfall too.
The time limits
| Rule | What it says |
|---|---|
| First notice | The lender must tell you in writing, as soon as possible after the sale, that there is a shortfall and how much it is. |
| Decision to recover | The lender does not have to recover it. If it decides to, it must tell you within six years of the sale (five years for mortgages under Scots law). |
| Legal time limit | Under the Limitation Act 1980, 12 years for the capital and six years for the interest, counted from when the lender became entitled to the money. |
A written acknowledgement or a payment can restart the time limit, so check your dates with a free adviser before you write anything.
If another company writes to you
The first notice must say if another company, such as a mortgage indemnity insurer, may pursue the shortfall. Debts are also sold to collection firms. Check who owns the debt now with our debt collector guides.
Checking the figures
- Ask for the sale price, the valuations the lender used and how long the home was marketed.
- Ask for a list of every cost added after possession.
- Compare the price with similar homes sold at the time.
- If you think it sold too cheaply or costs were unfair, complain to the lender, then to the Financial Ombudsman.
Dealing with the shortfall
A shortfall is no longer secured on a home, so it is a non-priority debt. You can offer affordable payments, or a lump sum as a full and final settlement. It can be included in a debt management plan, an IVA, a Debt Relief Order if your total debts are within the limits, or bankruptcy. Which fits depends on your whole situation, so talk to a free adviser before choosing.
You never have to pay for debt advice. MoneyHelper (government-backed), StepChange, National Debtline and Citizens Advice all give free, confidential advice with no obligation.
Common questions
How long can a lender chase a mortgage shortfall?
If it decides to recover the shortfall, it must tell you within six years of the sale. The legal time limit in England and Wales is 12 years for the capital and six years for the interest.
Can I offer a reduced settlement on a mortgage shortfall?
Yes. Lenders and collectors can accept less than the full amount. Get any agreement in writing before you pay.
Can a mortgage shortfall go into an IVA or DRO?
Yes. After the sale it is an unsecured debt, so it can be included in formal debt solutions, subject to each solution's rules and limits.