Mortgage shortfall
Types of complaints we see
We handle complaints from people who are unhappy that they’re being asked to pay more money – the “shortfall” – after their home has been repossessed and sold. People complain that:
- they’re confused about why they still owe money, given that their house has been sold
- their house was sold for too little – so the shortfall is the mortgage company’s fault
- the mortgage company didn’t get in touch about the shortfall until after the repossession
- they agreed a plan to repay their mortgage shortfall, but their lender now says they’re not paying enough
Handling a complaint
You have the opportunity to sort things out before we get involved. If a customer complains and you don’t respond within the time limits, or they disagree with your response, then they can come to us.
Find out more about how to resolve a complaint.
Things to consider
When dealing with a complaint about a mortgage shortfall, remember that following possession proceedings your customers could be in a vulnerable situation.
The FCA has produced guidance on dealing with vulnerable customers, which you might find useful.
What we look at
Depending on the nature of the complaint, we’ll expect you to have covered the following in your response:
- how the house was valued and marketed, and whether you got a fair price (MCOB 13.6.1)
- how you've made contact with the customer about the shortfall, and how often
- how you’ve taken into account the customer’s preferred way to communicate
- any evidence that the customer avoided being contacted about the shortfall
We consider whether it’s fair for the lender to recover the money if they haven’t been in touch for a long time. MCOB 13.6.4 requires residential mortgage lenders to contact their customer within six years of the sale date (five years in Scotland) to say whether they intend to recover a shortfall.
This is often likely to represent good practice for unregulated mortgages, though we will consider any reasons you give about why it’s reasonable to pursue after this time.
Where a shortfall is due, it’s quite possible the customer will have other commitments that limit their ability to repay the shortfall immediately. You must show you have tried to reach a constructive arrangement with your customer that helps them pay the money back. We’ll check that you’ve:
- tried to work with your customer to put in place a fair payment plan – taking into account their individual circumstances
- put your customer in touch with an independent organisation, like a debt charity, to discuss a realistic repayment plan
Below is more detail on how we might look at specific complaints.
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It’s likely the mortgage company will have incurred costs in selling the house – and interest might continue to be added to a mortgage until the house is sold.
We’ll usually say it’s fair for a lender to pursue these costs if they’re not covered by the money from the sale of the house.
But we’ll check the lender has worked with their customer to put in place a fair payment plan, getting support from a debt charity, if needed.
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If someone feels their house was sold for too little, we’ll look into how long it was on the market – and how circumstances such as market conditions might have affected the sale price.
Interest continues to be added to a mortgage until a house is sold. So we’re unlikely to decide that it’s fair for a lender to wait years to achieve the price it was initially valued at. We’ll consider whether the lender got the right balance of waiting for a fair offer, without keeping the house on the market indefinitely.
We’ll check that a lender got more than one valuation for the house, including at least one independent valuation. If the lender received an offer below the valuation price, we’ll look at what the estate agent said about the offer – to see if it seemed fair in the circumstances.
We’ll also check that the house was marketed fairly by at least one local estate agent. We’re unlikely to say that it’s fair for a house to be marketed as a repossessed property, for example – as this is likely to lead to it being sold for a lower price.
And it wouldn’t normally be fair to put the property into auction, rather than for standard sale, as auction prices are generally lower. In some cases, for example, when is in poor condition or doesn’t sell on the open market, an independent surveyor may recommend that course, however.If we decide a lender didn’t get a fair price for a house, we might tell them to write off some of the shortfall. They might also need to pay some compensation for any stress or upset their error caused their customer.
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It isn’t always unfair for a lender to review a payment plan a customer has agreed. If someone’s circumstances have changed, we might agree it’s fair to reduce their monthly repayments – or they might be able to pay off the debt sooner by increasing their repayments.
Some people tell us they feel their mortgage lender has harassed them about the shortfall. We’ll at look how many times and in what ways a lender has been in contact.
If we decide a lender has acted unfairly in how they’ve pursued someone for payment, we’ll tell them to work with their customer to agree a reasonable payment plan. We may also tell the lender to pay compensation for any trouble, upset or stress they’ve caused.
Putting things right
If we decide it’s unfair for you to recover a shortfall, we might tell you not to pursue some (or all) of the debt.
If you haven’t properly taken into account the customer’s circumstances, we may suggest you enter into a payment arrangement. We might also tell you to pay the customer compensation for any distress or inconvenience you may have caused.
Case studies
'It's not fair that the amount I owe has gone up'
Mortgages
'I've been contacted about a shortfall - but I shouldn't have to pay it'
Mortgages
'My lender's harassing me about paying the shortfall'
Mortgages
'My lender sold my house for a lot less than it was worth'
Mortgages
Resources
Search our decisions database to find out about past decisions on complaints involving mortgage shortfall.
MCOB 13.6 sets out FCA expectations relating to sale shortfalls following possession proceedings.
