For lenders, chasing repossessees is about cost control. They want to recover as much money from you as cheaply as they can. Never forget this, it is fundamental to what they do and why.

As far as we can tell, when a lender sends you a letter demanding shortfall cash, they are willing to settle for very much less than they are claiming - £5,000 seems to be the going rate. That's why they are so unwilling to answer any questions about the claim: as far as they are concerned they are reducing the amount they'll settle for so much that any amounts you query are easily covered by the reduction in what they ask for and what they will settle for.

Here's some comments a former employee of a lender made about this in response to a question about shortfall that was posted in an Internet legal forum. Read it and digest its implications:

"When I worked for a building society in the early 90's we lost a fortune on repossessions because we tried to support people through a recession that took far longer to reverse than we had imagined.

Shortly afterwards (probably about 1994) we started going after people who we saw as having started to get back on their feet. This was highly successful because

1. we were entitled to
2. most people didn't challenge it
3. we accepted just about any offer we were made

This meant that a small (ie cheap) team could collect lots of money that we'd already written off without a great deal of effort. I would guess that four years on not many lenders will have advanced from this state.

Write to the Chairman explaining that you are not in a situation to repay, sing a sad song and request that they come back in a year. Chances are they'll leave you alone eventually because it's too expensive not to."

First things first: the court is not actually against you. It's a chance to have the matter looked at by a neutral - and fair-minded - party. County court judges use a lot of commonsense. Remember also that taking you to court will be expensive - far more expensive than the ordinary person can afford if he loses the case. That's actually a problem for lenders because there is a limit to how much you have. So they prefer to frighten you into paying them the money they demand without having to face the cost of going to the courts.

A problem for lenders? Yes. Even when judges find against you, they can only order you to pay what you have after living expenses - usually between £25-£50 per month. A judge can't order your boss to give you a pay-rise.

If a lender did take you to court, the money they get - if they do win - is reduced because so much of it is spent on legal bills. If they try to get the cost of those legal bills from you, it reduces the amount they actually get because much of whatever you are ordered to pay has gone to pay their lawyers’ bills instead. In case you think having costs awarded against you means you get landed with a higher repayment, don't worry, there's also the problem that you only earn so much money anyway, so no matter how much the court finds against you, you are unlikely to be able to pay it all. The lender will therefore have to pay it. Lenders don't like wasting money for a result like that. They'd rather have what money they can get without spending their own. So they prefer not to do take you to court.

Let's look at an example. A mortgage lender chases you for a £30,000 shortfall. You can see that they sold your property too cheaply. You say so. They say: we'll take you to court. The court agrees that they sold it too cheaply and says you only have to pay £20,000. Because it partially agreed with you, it awards one third of the costs to you and two thirds to them.

Now let's look at those costs. At the time of writing, one hour of a lawyer's time in court costs about three months' worth of payments at the payments levels the judge is likely to order the ordinary person has to pay. So if your case last six hours, it will take eighteen months before the repayments cover the costs. Then subtract the third of the costs that you won - which makes it a year's worth of repayments. Now factor in the fact that their costs will be higher because of all the preparation work before the case. They will try to claim these - but if you can show that you gave them the chance to give you the information you required without going to court, they won't be able to claim these costs against you. See how they're heading towards a loss even though they partially won the case? That's why lenders rarely carry out their threat to sue. Settling with you earns them more money than suing you.

If you need more evidence of this, look at the Shortfall Letters section of this site. It shows the lender trying to find out whether or not it is worthwhile suing the person they are after. The emphasis on "Prelit reports" in the copy of a lenders' internal notes (obtained using the Data Protection Act) supports this. These internal notes are shown towards the end of the letters section.

Taking you to court will also be very risky - far riskier than the lender will let you believe. You may counterclaim negligence (many people are in a position to, we believe, though they may not realise it). The judge may feel that the lender hasn’t been as fair as they should have been and reduce the amount they get. The judge may feel that you were justified to fight the amount the lender claims and award your costs against the lender for that element of the case, even if he or she ultimately also finds against you. It all costs lenders money and, as we've said, they prefer to get as much money as they can. So be aware that it is highly unlikely that you will ever be taken to court.

BUT... it is just as likely that they will threaten to take you to court. They know it frightens you and they know that most people have no idea how the court system works, how expensive it is and how much it favours people who suddenly find big financial institutions threatening them.

They are also very unlikely to make you bankrupt. Making someone bankrupt costs a great deal of money. You have to take them to court first to prove your case as we've detailed above. Then you have to go to court again to make them bankrupt. All the way, the borrower may resist their efforts - and that costs them even more. And in the end all they get from making ordinary people bankrupt is a share of not-too-high ordinary person’s wage. This is the key. That wage is unlikely to pay off all the costs of making you bankrupt let alone give them their original money back. Also, when you’re made bankrupt, the Government takes 15% of the amount a lender could recover from you, which reduces what they get even more.

The whole thing hurts their wallet and hurts their reputation in public, which also hurts their wallet. So do not worry about bankruptcy. They very much prefer to come to an arrangement with you.

Nor do they search your bank account, though it is wise to assume that where lenders are linked to a bank, it will be easy for them to do this.

Do not worry about the mortgage blacklist. There are issues about the blacklist that we are still working on but we believe lenders face the risk of libel claims if they put some people on the so-called repossession blacklist. We’ll report more as we investigate this.

Don’t worry about them taking your new house off you. If you own it outright, they’d have to take you to court to get it using different proceedings to the ones they used when they repossessed you the first time around. This time it will be very much harder and very much more expensive. For all the reasons listed above, they are unlikely to do it. If you have another mortgage, they’ll only end up messing another lender about too. They don’t like doing that. Losing your new home is very unlikely.

What lenders want to have happen is for you to ring them up when you get their demand letter, offer them as much money as you can and commit to an indefinite repayment period. That’s the cheapest option for them. It costs them little money and creates a new contract that they can use against you if you later break it. It also costs you more money. They want you to ring them because they can admit on the phone that they are prepared to drop the amount they'll settle for, while judging how frightened you are.

What lenders do not want is to have to reveal how much they'll accept in writing. Nor do they want to reveal what they did with regard to the sale of your former home in writing. They do not want you to have any firm evidence against them that you can produce in court or show a lawyer.

Expect to be terrified by their letters - you can read real examples on The Home Repossession Page. Their aim is to terrify you.

Remember, lenders have responsibilities towards you. And you have rights. Use them.

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Last modified: 05 Oct 2000
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