Must you repay an old mortgage shortfall?

Q A friend of mine received a letter from the Halifax last week, asking for a £14,500 sum to cover the repayment shortfall on the mortgage when her house was repossessed nine years ago. This is the first she has heard from them and so she was shocked to be asked for such an amount.

The mortgage was jointly held with her ex-husband, from whom she was separated at the time of the repossession, and who was supposed to be paying the mortgage. Her daughter has told her that he received a similar letter from the Halifax a couple of months ago, which apparently he has ignored.

My friend is in no position to repay the Halifax, which has asked for all her financial details and a repayment plan (lump sum, instalments or a combination) to be submitted in 21 days. I don't know the exact details of her financial situation but I do know that she hardly gets by on her salary of £14,500 a year.

Again according to her daughter, my friend's ex-husband owns two houses and is generally doing well for himself, so she is reluctant to have to stump up for what she considers are his mistakes when she is scraping by.

Does she have any legal obligation to give the Halifax her financial details? Can she request that the Halifax goes after her ex for this money? Why did they wait this long? Is there any way she can contest her obligations to the Halifax? Where would she get the best advice on how to deal with this situation? Obviously she would rather not pay anything, but is there any way this is possible, or will she have to pay?

PJ

A First the bad news: even though your friend was separated from her husband at the time of the repossession, the Halifax is legally entitled to come after her for repayment of the shortfall debt because as a joint borrower she is 'jointly and severally' liable for the whole amount even though she wasn't paying anything towards the mortgage on a monthly basis. So technically, she could be made to pay up.

But the good news is that the Halifax seems to have left getting in touch far too late. Under a voluntary agreement which came into force on February 11, 2000, all lenders who are members of the Council of Mortgage Lenders (CML) - which Halifax is - cannot ask borrowers to repay shortfall debts (which can arise when the sale proceeds from a repossession are insufficient to repay the mortgage and meet the lender's other costs) unless they attempt to contact former borrowers within six years from the date the property was sold.

Given that the property was sold nine years ago, your friend should certainly contact the Halifax to tell them that they are in clear breach of this voluntary agreement (which will become compulsory once the Financial Services Authority takes over mortgage regulation at the end of October 2004).

It might help to send a copy of the CML's factsheet Debt Following Mortgage Possession.

If the Halifax refuses to back off, your friend should then ask for details of the Halifax's formal complaints procedure, which it is obliged to provide. If, after making a complaint to the Halifax, the issue is not resolved, your friend can ask the Financial Ombudsman Service to intervene.