Mortgage Debt, Why Do Banks Write Off Mortgage Debt?
A property sold where there is negative equity presents a problem for both the bank and the borrower. What happens to the rest of the mortgage debt? In our experience the vast majority of banks and building societies will write off (provide debt forgiveness) for some or most of the shortfall. But WHY would they do this?
1) Cost of Recovery – Banks and Building Societies have to weigh up how much they are prepared to spend attempting to recover this debt. This can be very expensive and take many years.
2) Ability to repay – If you owe the Bank £60,000 after the property is sold but do not have the ability to repay this now or at any time in the near future, the bank’s options are then very limited.
3) Taxation – Banks can benefit from a reduced taxation bill when they successfully write off mortgage debt.
4) Legal – Banks and Building Societies are only allowed to pursue debt for a limited period. After that the debt can be legally deemed as “not enforceable”.
5) Regulation – Banks and Building Societies were entrusted with ensuring mortgages were affordable. Should they have failed to act responsibly there can often be a complaint resulting in compensation and / or a mortgage debt write off.
Typically we achieve 80%-90% debt write off for our customers as banks are more willing to negotiate with third parties like Negative Equity NI.
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