If you fail to repay a secured loan as specified in the initial agreement, your lender may begin legal proceedings to repossess your home. This is why it is important to ensure you fully understand both your obligations and your financial position, before entering into a secured financial agreement of any kind.
What is a second mortgage or secured loan?
Second mortgages and secured loans are loans for any purpose secured against the value of the borrower’s property. Secured loans are often taken out to fund property extensions, renovations and improvements, though can be used for a wide variety of other purposes.
What happens when you fall behind on your payments?
Most lenders impose fines and penalties where the occasional payment is missed, which may also result in damage to your credit score. Should you miss several payments in a row or fail to meet your obligations on a regular basis, the lender may take the first legal steps towards repossessing your home.
This is why it is important to avoid falling into arrears in the first place, or to at least speak to your lender the moment you face difficulties meeting your obligations.
What to do when you have arrears
If you fall into arrears, the first thing to do is contact your lender directly. Contrary to popular belief, the vast majority of lenders would prefer to avoid complex and costly repossession proceedings where possible.
Therefore, you may be able to negotiate a new repayment plan or financial agreement with your lender, in order to prevent repossession from becoming necessary. If your current financial deficit is strictly temporary, your lender may be willing to grant you a one-off payment break, during which heavy additional fees and penalties may not be applied.
Even if your financial struggles are more permanent in nature, it may be possible to reach a mutually amicable agreement with your lender. When you have arrears, the worst thing you can do is ignore the issue and hope it goes away on its own.
Repossession proceedings
If your lender chooses to take the first steps towards repossessing your property, they are required to follow a certain protocol as outlined in UK law. This includes an initial statement and declaration to the borrower, outlining the extent of the arrears and with an accompanying default notice.
This default notice will specify:
- the missed payments and the deadline by which you must clear your debts.
- details as to what happens next if you fail to clear your arrears
It’s important to note that upon receiving a default notice, there may be no subsequent communications from the lender, prior to being taken to court. You must therefore ensure that you take action the moment you receive a default letter from your lender, rather than waiting to hear from them again.
Repossession court proceedings
If the matter is taken to the courts, those presiding over the case will determine which of several possible rulings is appropriate. The court may choose to:
- Make a time order
- Dismiss the case
- Postpone the case
- Make a suspended possession order
- Make an outright possession order
In the event that the court makes a time order, you will be permitted to continue living in your home, but must continue to pay your debts by way of a modified repayment plan. This may include a low monthly repayment, an extension to the overall loan repayment period and so on.
If you have any questions or concerns regarding your ability to meet your secured loan repayment obligations, contact your lender at the earliest possible juncture.
