18th August 2015

Repossession of Homes

This article has been published at a time when relatively few homes are being repossessed. The Council of Mortgage Lenders has announced that just 1,800 properties were seized from owner-occupiers in the past three months. This is a significant reduction versus the same period last year.

For several years, low interest rates have provided property owners with a degree of protection against the risk of losing their homes. Despite this, more than 100,000 homeowners currently have mortgage arrears totalling more than 2.5% of their mortgage balance.

Repossession and trust deeds

It’s clear that large numbers of people who are in arrears with their mortgages remain at significant risk of losing their properties. With interest rates expected to increase in the coming months, it’s likely that increasing numbers of people will get into mortgage repayment difficulty in the future.

We’re not covering whether your house is safe from your trustee (if your trust deed fails) in this article. Please visit this link to understand the risks to your home from a failed trust deed if you have equity in the property.

In this article we review what repossession might mean for you before, during, or after you’ve entered into a Scottish trust deed. In particular, we investigate mortgage shortfalls from repossessions and how these debts are treated.

Home Repossessed Before Starting a Trust Deed

If your home was taken back by a mortgage lender some time ago a mortgage shortfall debt may have been created. This occurs when the home is sold (by the recovering lender) for a sum that does not cover the amount owed to them. Once the home is sold, this debt becomes an unsecured debt.

Though the lender might not press for immediate repayment, in due course they’ll look to recover what’s owed to them. This could occur many years after the recovery of the property. Collection might be outsourced to a debt collection agency, or the debt might be sold to another company that will seek to make a recovery of the sum due.

This type of mortgage shortfall debt will be included in a protected trust deed (just like another other unsecured debt). You’ll need to let your potential trustee know about the debts’ existence so that they can communicate your proposals to this particular creditor.

Repossession During Scottish Trust Deeds

Sometimes a property might be recovered after a trust deed has begun. You may have been aware that a mortgage shortfall debt was likely to be created at a future point in time, but have been unaware of just how much that debt would eventually be.

A scenario where you know that a debt will exist, but it has not yet been quantified, is known as a “contingent debt”. Contingent debts are included in trust deeds – the lender will need to submit a claim to your trustee in order to benefit by receiving a dividend from them in the future.

Even if you did not know that this debt would be created, if the mortgage existed when your trust deed began any such new shortfall will automatically become an included creditor.  The successful completion of your trust deed will result in any unpaid portion of this debt being written off.

Repossession After A Protected Trust Deed Has Finished

Another possible scenario is that a mortgage shortfall debt is created after you have been discharged from your trust deed.

If this mortgage existed at the time that your trust deed began, then this new debt also falls within the scope of your previous personal insolvency. This is the case even if the home is repossessed after you have been discharged and your trustee is no longer involved in the matter.

It’s irrelevant that it’s too late for the mortgage lender to submit a claim to your trustee and receive a dividend from it. The important detail is simply that the mortgage existed when your trust deed was signed. If that’s the case you’re not normally going to have a personal liability for any new shortfall debt that is created. However, you may need to spend some time making your case in this respect understood by the lender concerned.  

Further Help

If you’re struggling with various debts and also facing the risk of repossession it’s important to get debt advice quickly. Early action can help you to avoid the most serious consequences. Contact our professionally qualified debt advisers by telephone on 0141 2490416 or by using one of the contact forms on this website.

If you’d like technical advice about the consequences of repossession during or after a trust deed in Scotland you may wish to post in our forum. A panel of personal insolvency experts is available to answer your questions there.

If you’re worried about the personal consequences of a pending or current repossession then Shelter Scotland are the experts. We’d suggest that you reach out to this organisation as soon as possible. In some circumstances repossession can be stopped altogether if you get the right help.

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