A reader, Mr D, asked:
I had a mortgage shortfall from 2006 after my house was repossessed by Natwest. As a mortgage shortfall stays on file for 12 years, I decided to make a Full and Final settlement offer in January this year which they accepted and which has now been paid.
Now with both Equifax and Experian, the account has disappeared, it doesn’t appear in my open or closed accounts. However, in my Noddle report (Call Credit) it is on my file as closed with a code status of PS – partially settled.
I raised a dispute with Noddle stating that the account doesn’t appear with Equifax or Experian, so they need to remove the account.
So my question is, should they close it, as I’m guessing it will be Natwest who have reported the account to the Credit Reference Agencies (CRAs) as settled and not partially settled. I’m confused why the status would be different with one of the three CRAs?
How a repossession should be recorded
A house is only repossessed if you have defaulted on the mortgage payments. So there should be a default recorded on the mortgage account at the CRAs.
When the lender sells the house, if the price has covered the mortgage (including the lender’s costs and interest added), the mortgage should be marked as “satisfied” at the CRAs, with no balance owing.
But often after repossession, the house is sold for less than the outstanding mortgage. This mortgage shortfall is a debt that the borrower still owes and the mortgage account at the CRA should show this as the balance owing.
It is no longer a secured debt, as the house has been sold. But because it used to be secured, the Limitation Act says that the lender has twelve years to take you to court for the part of the debt that was the capital owed, not the usual six years. National Debtline’s Mortgage Shortfall factsheet covers this in detail, including when the time starts running and the fact that if the lender does not contact you for six years, you may not be asked to pay the shortfall.
Because it has defaulted, the mortgage debt will be deleted from the CRAs’ records after six years, just like any other defaulted debt. There are no special rules at the CRAs saying they keep mortgage shortfall debts for twelve years. And partially settled debts also disappear six years after the default date.
So what has happened with Mr D’s credit records?
But this hasn’t happened correctly for Mr D!
I asked him if there had been a default and he said:
The debt was always showing as 6 months late never a default.
That is wrong… but it explains the rest of what happened. The mortgage debt continued to show on his credit records after 2012 because no default had been added back in 2006.
After Mr D settled the shortfall, Natwest have gone in to update his credit record and it looks as though they realised that the Experian and Equifax’s records were wrong. So as well as updating the balance to zero, they added a default date that was more than 6 years ago so all trace of the mortgage has disappeared from Mr D’s records.
But, for some reason, Natwest didn’t add a default date to his record with TransUnion (formerly called Call Credit), so Mr D’s Noddle report shows the mortgage debt as being partially settled and with a zero balance. If Mr D doesn’t get this sorted, this mortgage will continue to show as a closed account for six more years and hurt his credit score.
How can he get this put right?
Mr D has asked Noddle to sort this out. But now it is clear what the mistake is, I think it may be quicker if Mr D complains directly to NatWest, asking them to add a default date back in 2006 to his TransUnion record.
Finally, if your house has just been repossessed…
This is too late for Mr D. But if you know your house will be repossessed soon, or it has recently been sold, it is good to think how you will deal with the resulting mortgage shortfall.
Many people are stressed and exhausted after losing their house. If the lender isn’t being pushy about getting a payment arrangement in place, they just ignore a shortfall that it is clearly too large to repay in a few years.
This is very often a mistake. You may then be contacted in a few years, just when you are back on your feet and faced with either starting large repayments or getting a CCJ which will wreck your credit record for another six years. It is a millstone around your neck.
With a large mortgage shortfall, it is very often better to look at bankruptcy to get rid of it, and your other debts, and have a clean start.
Bankruptcy – the big questions
What should the default date be?
How much will my credit score change if…
Chris Bone says
July 23, 2018 at 3:08 pmRE SHORTFALLS – Sometimes it is worth looking further into the shortfall debt figure, in particular the actual sale price figure, repossessed properties are supposed to have 2 independent valuations to help ensure a fair sale price is obtained. These should be available to view if a query arises, rather than the lender stating for example “the sale price reflected market demand”. The sale price obviously influences the shortfall figure and it can make a difference between saY a DRO and bankruptcy. The FOS can intervene if a complaint is raised and the lender either cannot or refuses to provide valuations.
Leah says
July 31, 2018 at 11:06 amI have an outstanding debt in joint names from an old norther rock ‘together’ mortgage. The house was repossessed and sold massively under market value in 2011. Northern Rock Or Landmark Mortgages as they are now say there is an outstanding amount of approx 50k ( Not sure of exact amount as they don’t write to me!) My ex partner pays them an amount each month and currently I pay them nothing. If i was to get another mortgage in the near future as my credit rating has improved could Northern Rock apply to the courts to put a claim on my new property?
Sara (Debt Camel) says
July 31, 2018 at 1:37 pmYes, in theory they could do this, they would have to take you to court for a CCJ first, i don’t know if that is likely whilst your ex is making payments. This debt will never become statute barred as your ex has been making payments to it.
I will say what won’t help you now but may help someone else if they read this – it is great pity you did not go bankrupt when the house was repossessed in 2011. All this by now would have been behind you.
Also double check that your credit record is actually good with all three credit reference agencies before applying for a mortgage.
Sonia says
August 11, 2018 at 10:54 amHi I had a secured loan attached to a house that was repossessed back in 2007 which is still on my credit file showing 6 months late payments with Idem. I have no clue what to do with it. It’s 11 years old and still going. No payments have been made in 6 years. Any help would be appreciated.
Sara (Debt Camel) says
August 11, 2018 at 12:02 pmI think you should talk to National Debtline on 0808 808 4000 about when this mortgage shortfall is likely to be statute barred. You could get a default added now back in 2007 and the debt would disappear from your credit record. But if the debt isn’t yet statute barred, this may be a mistake as it may prompt Idem to start chasing you to repay it.
kev says
April 2, 2019 at 4:27 pmI have 30k debt with NRAM from 2007. The mortgage was in joint names with ex partner.
I’m eager to get back on track with credit references etc however it isn’t actually showing on Noodle or Clearscore.
I have offered a F&F which NRAM are considering however I want to make sure I actually owe this before making a payment.
I suppose what I’m asking is……am i still liable even although its not on my credit file
Any help is appreciated
Sara (Debt Camel) says
April 2, 2019 at 4:32 pmDo you still own the property? If not when was it sold/repossessed? Have you made any payments to this debt?
Have you looked at your Experian credit record? See https://www.moneysavingexpert.com/creditclub for how to check that?
The fact that a debt doesn’t show on your credit record says nothing about whether it is legally enforceable.
Gem says
April 13, 2019 at 7:18 pmHi, I have an 18k debt from a shortfall when our house was repossessed in December 2013. I am paying a small amount off this each month within a debt management plan. Each month it shows are VR (Voluntary repossession) on my credit file. Should this be removed from my credit file after 6 years – ie December 2020, even though I am paying off the debt monthly? Thanks
Sara (Debt Camel) says
April 13, 2019 at 8:12 pmHow much are you paying each month and do you have other debts in the DMP as well?
Gem says
April 13, 2019 at 8:45 pmHi, Yes I have other debts within the debt management plan. I am paying £29 per month at the moment towards the Chelsea debt, £60 per month in total to my debt management plan. The first default on the mortgage was December 2013. As I am paying monthly will it still be removed from my credit file after 6 or 7 years? Thanks
Sara (Debt Camel) says
April 13, 2019 at 9:36 pmIt sounds as though this DMP will go on forever? I suggest you talk to National Debtline about your options such as bankruptcy. It is a shame you did not go for that in 2014, but don’t let that stop you taking the right decision now.
Re the mortgage debt on your credit record – is there a default date on it?
Gem says
April 13, 2019 at 9:57 pmHi
It doesn`t say a default date. Each month on my Experian record just says VR right the way through?
Dave says
April 24, 2019 at 6:41 amI Had a mortgage with a ex nearly 30 years ago, we split, I went to work away and she kept house, it got repossessed 28 years ago, I am now about to apply for a new mortgage with my wife, do I say I had a previous mortgage and had it repossessed or say I havent had a mortgage before
Sara (Debt Camel) says
April 24, 2019 at 8:06 amYou tell the truth – you have had a mortgage before and the house was repossessed. But this is ancient history, you shouldn’t have a problem getting a mortgage at a good rate. I always suggest going through a good broker though.