Mortgage repossession and your credit record

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 a repossession and, as 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.

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