Mortgage Shortfall Debt And Scottish Trust Deeds

14th September 2012

Homeowners that have had their property repossessed, or who have voluntarily handed back the property to the lender, may find that they become liable for a mortgage shortfall debt. Mortgage shortfalls arise when the subsequent sale of the property fails to cover the value of the mortgage(s) outstanding and/or the costs involved in maintaining and selling the property.

In some circumstances mortgage shortfalls can amount to very significant sums of money. Without the “security” (the home itself) existing any longer, mortgage shortfalls become “unsecured” debts. Other types of unsecured debts include overdrafts, credit cards, payday loans etc.

As an unsecured debt, it is perfectly possibly to include mortgage shortfalls in Scottish trust deeds. Indeed, if you intend to enter a trust deed (and you have a mortgage shortfall debt) it must be included along with all of the other relevant unsecured debts.

Will the original mortgage lender(s) allow your trust deed to become protected if you include a mortgage shortfall amongst your creditors? There is no single clear answer to this question. Like other unsecured lenders, a creditor owed a mortgage shortfall debt will take a commercial view of any trust deed Scotland proposal that is made to them. If the proposal is fair, reasonable, and offers a better commercial outcome than bankruptcy (sequestration), it is likely that this creditor will support the trust deed becoming protected.

A single creditor owed more than a third of your total debts can object to a trust deed becoming protected and thereby prevent it from doing so. As many mortgage shortfall debts are comparatively large, it’s quite common that such a debt will represent more than a third of the total debts owed by an individual. If you are in this position we suggest that you question your prospective trustee (trust deed Scotland provider) about their experience of dealing with this creditor and the likelihood of acceptance, before yourself becoming committed.

Will a Scottish trust deed be the best way for you to deal with debts including mortgage shortfalls? This all depends upon your circumstances. Proper advisers will discuss all of your circumstances with you and then inform you about all of the options that are available to deal with your debts including the shortfall. In many instances it may be the case that bankruptcy (sequestration) or the debt arrangement scheme are more suitable options.

The starting point is to take advice from a professionally qualified debt adviser or insolvency professional. Mortgage shortfalls debts can cause much stress and pressure, but solutions exist that can bring the situation back under control. The adviser will give you options that will start the process of putting you back in control of your finances.

You could also ask questions about mortgage shortfalls in our trust deed Scotland forums. Experts are available to share their knowledge and experience with you.

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