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Debt, repossession and property

It is commonly understood that if you fail to keep up with your mortgage payments your home is at risk of repossession.  For more information about how to stop a mortgage repossession please read this article.  What is less well understood is that if you borrow funds via an unsecured loan you can face the same risk.  Typical forms of unsecured lending are credit cards and personal loan agreements.

So how can an unsecured debt lead to the repossession of a property?

Lenders are not stupid.  When they agree to provide some form of unsecured lending they will mainly base their decision on your income level.  However, they will also carry out credit checks and find out if you own a property.  This information will make it easier to approve your loan and may even influence the amount they are prepared to lend.

If you subsequently fail to make your loan repayments the lender may apply to the courts to obtain a county court judgment (CCJ).  Once they have a CCJ they can then apply for what is known as a charging order.  The charging order can be registered as a secured debt on your property.  And hey presto that is how an unsecured loan turns into a secured loan.

In most cases the lender will not seek to force the sale of the property to recover this newly secured debt.  This is because the debt, being an unsecured loan initially, is relatively small compared with mortgage debt.  It is not cost efficient to repossess property for small sums of money.  Interestingly, the lender can also charge interest on the outstanding loan amount.  At the current prevailing interest rate of 8% this represents a healthy return.  Conceivably this could even have a bearing on the lenders desire to repossess.  However, if the lender decides to recover their debt they can apply for an “order for sale”.  If the order for sale is granted they can repossess the property.

After Repossession of a Property

Be aware that once a property is repossessed your debts do not stop accruing.  The lender will continue to charge interest until the property is sold.  If the sale of the property is not sufficient to cover the outstanding debt you have what is called a “mortgage shortfall”.  You remain responsible for any mortgage shortfall.  The lender can pursue you for up to 12 years to recover the mortgage shortfall.

 

If you are in a situation that is beginning to resemble the above scenario then call us or simply enter your postcode and complete your details.  We will contact you immediately to see if we can help.  If we are not in a position to help we will do our best to advise you.




Tips on dealing with debt

How you deal with your debt problems depends a lot on both the size of the debt, and the extent to which the problem has been allowed to build up. For smaller debts, making a few cutbacks may be enough, but more serious debt problems require more drastic action.

Do the maths

To start to deal with the problem, you will first need to sit down and work out exactly how much you owe. Not facing up to the problem means that you will start getting County Court Judgements and worse. As a rule of thumb, if your debt repayments take up more than a fifth of your budget, then you are in the danger zone.

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