What is the law if you default on a secured loan?

The laws on default on a secured loan are fairly clear, but at the same time are not always enforced by the building societies and the money lenders. The simple rule is that if a borrower does not make the monthly repayments for more than three months, then the lender has the right to issue a default notice. If the situation continues, then the lender has the right to go to the courts and eventually re possess the secured item, which in most cases is property.

However it can be some time before a building society takes that action. That is for several reasons. One is that repossessions are really the last straw, and the lenders do not see a high number of repossessions as good publicity. If people think the mortgage lender is the kind who will grab the house at the first opportunity, then they might prefer to go somewhere which is more lenient. Over the term of a mortgage all sorts of things can happen to a borrower, some good and some bad, Riding the bad times is something which a building society has to accept as a possibility and the vast majority do. They may renegotiate the term so the repayments are lower or even put a new mortgage in place. In the UK, they are in fact very helpful, so long as the borrower keeps them informed of the situation. Ignoring the issue is the worst thing to do, as this will automatically lead to default notices, and that goes into the bad credit history files.

The default notice is something which is simply a letter, although as a stalling strategy there are people who simply claim they never got the letter. The laws then dictate that the default notice is the start of legal proceedings and that goes leads to a County Court Judgment (CCJ) against the borrower. But repossession is still not a certainty as the CCJ will suggest new repayments, but they have to be kept informed of the progress.

All this goes on the credit rating, and to put it simply it means credit is going to be difficult to arrange for the next six years. So there is a long way to go before a building society or bank takes over the house and kicks the occupants out. They do not want to do this and for them it is an administrative headache, so it really is the last chance saloon. Having said that, the past few years have seen the highest number of repossessions ever. Much of the advice on the laws on default, and the whole mortgage and property scene can be found online and in the specialist magazines.