• Aug

    Mortgage shortfalls are classed as speciality debt. Under the Limitations Act 1980, it is one of the few debts that can remain legally collectable after 6 years of no contact. The time is actually set to 12 years. So whereas other lenders have no right to chase you for old debts after 6 years of no contact, a mortgage provider could chase you for up to 12 years for a mortgage shortfall debt.

    There is an inherent problem with this law - and this problem was recently tested. The quandary presents itself in cases where a counter claim ensues. For example if it was 10 years after the repossession, and you get a summons for mortgage shortfall repayment, and wish to counterclaim, then your situation is impossible.

    This is because all debts other than mortgage shortfall debt cannot be legally collectable after 6 years, and so your counterclaim would not legally be able to go ahead as 10 years would have passed. The case would be an impossible one because under human rights laws you have the right to appeal and counterclaim, yet under the limitation act, debts that you claim from the lender (eg if the house was undersold etc), cannot be claimed after 6 years! In the test case the proceeding were thrown out of court!

    Safe to say, it is very rare for building societies to chase speciality debt after 6 years, and in any case when repossessions and mortgage shortfalls occur en-mass you may find that they do not chase you at all.

    The best way to proceed if a debt ensues that is large and that you feel would be impossible to pay back is to test the waters and see if any action that is threatened in regard to the debt comes to pass.

    Even if it does you could argue at court that either you cannot pay, or that the house was sold incorrectly, or a whole host of other possibilities that may lead to the debt being written off or reduced by the court.

    You could even go bankrupt and thus the debt would more or less be written off if you have no other assets. Because bankruptcy is a scenario so widespread in property crashes, it forms the backdrop as to why mortgage providers do not chase these debts as hard you might think!

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