Selling a house with mortgage arrears
Arrears are a problem with a process attached, and the process has stages. Almost every stage leaves you an option that is better than the next one.
A lender cannot repossess without a court order, and the route to that order is long. Missed payments lead to letters, then a formal notice, then court proceedings, then a hearing, then a possession order, and only then an eviction date. Each stage is a chance to act, and the options narrow as you go.
The single most important fact is that a sale you arrange is almost always better than a sale the lender arranges. A lender sells for what it can recover quickly, adds its own costs, and does not attempt to maximise the price. The proceeds then go to the debt, and you have had no control over the figure.
What to do at each stage
The earlier you engage, the more options you have. Lenders are more accommodating before proceedings start, and some will capitalise arrears onto the loan where there is equity.
- Arrears stage: contact the lender, propose a payment arrangement, ask about extending the term or capitalising the arrears
- Before proceedings: take free independent advice from Citizens Advice, StepChange or Shelter
- After a claim is issued: respond to the court papers and attend the hearing, where orders are frequently suspended on agreed terms
- Possession order suspended: keep to the agreed payments, because a suspended order can be enforced if you do not
- Before eviction: the last point at which a sale can realistically be arranged, and it requires the lender's cooperation
Selling to clear the debt
If there is equity, selling yourself and repaying the mortgage is usually the best outcome. The lender must provide a redemption statement showing the exact figure to settle, and it will normally agree to a sale at a reasonable price rather than proceed to possession, because possession is expensive for the lender too.
Tell the lender as soon as you decide to sell and ask it to suspend enforcement while the sale proceeds. A lender that knows a sale is progressing is far more likely to hold off than one that hears nothing, and the arrangement should be confirmed in writing.
Where there is no equity
If the mortgage exceeds the property's value, a sale will not clear the debt and the shortfall remains owed. The lender may agree to a short sale — accepting the proceeds in full settlement — but it is not obliged to, and it will want evidence that the price is the best achievable.
This is why getting the settlement wording right matters more than anything else. An agreement that the proceeds are accepted in full and final settlement of the secured debt extinguishes the shortfall. An agreement that does not say this leaves the debt live and recoverable for years.
Common questions
- Can I sell my house if I am in mortgage arrears?
- Yes, and if there is equity it is usually the best option. You need the lender's cooperation because it holds the charge and the proceeds must settle the mortgage. Tell the lender early, keep it informed, and ask in writing for enforcement to be suspended while the sale proceeds.
- What happens to my debt after repossession?
- If the property sells for less than the total secured debt, the shortfall remains owed and the lender can pursue you for it, potentially for years. This is why a negotiated sale, with written agreement that the proceeds are accepted in full and final settlement, is usually worth pursuing hard before possession takes place.