Shortfall

What is shortfall?

Shortfall is credit slang used to describe any loss between the sale proceeds of a property following repossession, and the mortgage debt.

This can occur if a home is repossessed while in negative equity, or is worth less than was paid for the property. If your house is repossessed and the lender does not make enough from the sale of the house to cover the outstanding mortgage plus costs, they may sue you for the shortfall.

Under the Limitation Act 1980, you are liable for any capital shortfall for twelve years from the date you last made any payment on the mortgage debt, or twelve years from the date you last acknowledged the debt in writing. The lender has only six years to sue for any interest due on the capital amount.

This differs somewhat from the guidelines issued by the Financial Services Authority and the Council of Mortgage Lenders. These state that the lender should not pursue the shortfall if it has not contacted you regarding the debt within the last six years. If you took out Mortgage Indemnity Insurance, this may cover the lender for any shortfall loss.


Q: Am I liable for any shortfall in the property value when it is sold?

A: Yes. The mortgage lender may sue you for the remaining shortfall in costs raised when selling the property. Furthermore, you are liable for any shortfall in a 12 year period after the most recent payment.

Q: Is there any way to prepare for mortgage shortfall?

A: Shortfall insurance is often widely available to protect against any loss of value of the property if it needs to be sold as a result of repossession.

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