Lender's sale of the property

Once the lender has obtained possession it is likely to proceed to sell the property. There are likely to be outstanding issues to be dealt with at this point.

This content applies to Scotland

Lender is selling the property

When the lender obtains possession it is under a duty to advertise and to get the best price possible for the property. [1] However, the court will not interfere with the sale unless the property is clearly undervalued. [2]

On completion of the sale, the borrower will be paid any money which is left over after settling the mortgage debt, including legal costs, estate agent's fees and the redemption of all other securities registered on the property. If the sale proceeds are not sufficient to pay off the mortgage in full, the lender will have the option of pursuing the borrower for the shortfall, as will the insurance company if it has had to pay out on a mortgage indemnity policy. (The page on voluntary sale explains more about mortgage indemnity policies.)

Dealing with a shortfall

There are many occasions when an enforced sale will lead to the lender and/or the mortgage indemnity insurer pursuing the borrower for a loss arising from the sale of the property. Although there can be no guarantee that the lender will not raise a payment action or even petition for bankruptcy, it is recommended that borrowers adopt the following strategy with a view to reaching agreement over the debt:

  • The borrower should explain the reasons for the mortgage payment difficulties and show what steps were taken to minimise the losses incurred by the lender.

  • The borrower should provide an outline of her/his household budget, showing that there is very little money available to contribute towards the repayment of the debt.

  • The borrower could offer to pay a percentage of the debt, by affordable instalments, over a period of two to three years, on condition that interest will be frozen and the balance of the debt written off.

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. The page on extinction of mortgage debt explains more.

Making a complaint

If the lender is unhelpful or the borrower has reason to believe there has been unfair treatment, a complaint can be made to the Financial Ombudsman Service. A complaint could also be made by a borrower who believes that the lender has charged too much in respect of the maintenance of the property between repossession and sale.

Last updated: 29 December 2014

Footnotes

  • [1]

    s.25 Conveyancing and Feudal Reform (Scotland) Act 1970

  • [2]

    Royal Bank v A & M Johnston, 1987 GWD 1-5; Bank of Credit v Thomson, 1987 GWD 10-341