Extinction of mortgage debt

If a property is repossessed and sold at a loss, it is possible that the lender will not pursue the borrower for payment of the shortfall immediately, and may wait several years before pursuing her/him. In this case, it is important to be aware of the time limits set out in the Prescription and Limitation (Scotland) Act 1973.

This content applies to Scotland

Time limits for recovering mortgage debt

The time limits for pursuing mortgage debts differ according to the nature of the debt. The time limit for recovering mortgage interest debt is five years. Therefore, if, after five years, the lender has taken no steps to pursue the outstanding amount and the borrower has not acknowledged that s/he owes the amount, the debt will no longer be enforceable. [1] However, the time limit for pursuing mortgage capital debt is 20 years. [2]

Most mortgage agreements give the lender the right to decide how debts should be allocated, so the lender is likely to claim that the shortfall is capital, and therefore subject to the 20 year time limit. This is a complex issue, so it is best to consult a specialist money adviser for advice.

The time limit starts from:

  • the date the debt became enforceable, or

  • the date the lender issued the borrower with a written demand for repayment of the debt, [3] or

  • the date the borrower last made a payment towards the debt (including mortgage payments made by the Department for Work and Pensions [4]), or

  • the date the borrower last acknowledged the debt. [5]

Acknowledging the debt

The borrower, or a person acting on her/his behalf will be said to acknowledge the debt if s/he:

  • acts in a way that clearly indicates that the debt still exists (for example, makes a payment towards it or presents a payment plan), or

  • makes a written admission that the debt still exists. [6]

Because acknowledging the debt can restart the five-year time limit, it is very important that neither the lender nor anyone negotiating on her/his behalf takes action which could be construed as acknowledging the debt, for example, by:

  • writing to ask for a statement (including sending letters marked 'without prejudice')

  • presenting a statement of affairs or payment plan to the lender

  • using the word 'debt' in any correspondence with the lender.

If it is necessary to contact the lender on the borrower's behalf, it is best to do so by telephone, and to ask for further information about 'an amount of money the lender claims is owed by the borrower, which the borrower does not acknowledge'.

Voluntary agreement by Council of Mortgage Lenders members

Mortgage lenders who are members of the Council of Mortgage Lenders (CML) have agreed that all mortgage debts will be recovered within five years. This means that if the borrower's home was sold through repossession over five years ago and her/his lender is a CML member, s/he should not now be contacted by the lender. [7]

Last updated: 29 December 2014

Footnotes

  • [1]

    s.6 Prescription and Limitation (Scotland) Act 1973

  • [2]

    s.8(2) Prescription and Limitation (Scotland) Act 1973

  • [3]

    Sch.2 para.3 Prescription and Limitation (Scotland) Act 1973

  • [4]

    Bradford and Bingley plc v Cutler [2008] EWCA Civ 74

  • [5]

    s.6(1)(b) Prescription and Limitation (Scotland) Act 1973

  • [6]

    s.10(1) Prescription and Limitation (Scotland) Act 1973

  • [7]

    See the CML consumer advice on mortgage debt