Avoiding Default and Repossession

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Repossession as a result of overdue loan instalments is commonly understood - but you may not be aware of these other breaches that could lead to your lender taking action to recover the security that it holds over your loan. .

What is a default?

The most common type of default under a loan agreement is an overdue repayments but, if the loan is subject to security (e.g. your home, car, etc) then there are a few other things that could get you into trouble.

For example, a default might be recorded if you don't maintain insurance on the security for the loan. You would also be in default under the terms of your loan if you were to sell or otherwise dispose of the security without paying out the loan.

Court proceedings

You should be aware that a lender has a great deal of scope in commencing legal action in relation to recovery of a loan that is in default - so long as the following has already occurred.

• the borrower is in default under the loan contract;
• the lender has sent a remedy notice to the borrower at their last known address
• the borrower has been allowed a prescribed time to remedy the default.

If the lender has made all reasonable attempts to contact the borrower but without success, the lender will be deemed to have satisfied the above criteria.

If this is not the first default default under the loan, the lender may have previously written to advise the borrower that there will be no further notice provided.

If your lender starts legal action against you, you should consult a lawyer.

More time please!

A lender may agree to give you more time to make up the overdue payments if you are in arrears.

This might require a bit of negotiation with your lender and you will possibly need to satisfy the lender that your position to meet your ongoing obligations are realistic.

One example might be if you have been out of work for a while and, now that you have been re-employed you can meet your installments once more.

If there is a lot of money owing, it may be advisable to consult a lawyer.

Thinking refinance?

You should always talk to a legal adviser or specialist finance broker/consultant before making a commitment to refinancing your loan.

Recovery action

Recovery action (repossession) by a lender of the goods securing a loan (e.g. your vehicle or home) can only occur if certain conditions are met under the Consumer Credit Code and after any period of written notice has expired.

A lender can't enter private property to recover it's security without the occupier's consent unless they have a court order permitting them to do so.

If you do have property repossessed, the lender must provide you with written advice of ...

• what the goods are worth;
• the lender's costs incurred in repossessing the item/s
• what you need to do in order to remedy the default and to get the item/s back in your possession.

You may be able to have the repossession process deferred if you can satisfy the lender that you will be in a position to remedy the situation in a time-frame acceptable to the lender.

When a lender sells property that has been repossessed, they are obliged to obtain a fair value for it. You should seek the advice of a lawyer if you believe that the lender has sold your property for less than the best price possible.

Once the security property has been sold, the proceeds are applied to your debt. If there is still a shortfall, the lender may start legal proceedings to recoup the difference

Personal guarantees

When you sign a personal guarantee on a loan agreement, you could be up for any money owing on the loan.

There are provisions however. For example, the lender must have obtained a court order against the borrower in relation to an amount owing before they can call up the guarantee.

You should consult a lawyer if you are guarantor on a loan where the defaulting borrower can't be located or has declared bankruptcy.

Unfair agreements

Depending on the situation, you may be able to withdraw from a loan agreement if the contract is deemed to have been to unfair when you first signed up.

These are some of the reasons that this could apply.

• the conditions set out in the loan agreement are too harsh
• you were inappropriately induced into taking the loan
• the interest charged is unfair or inequitable in the circumstances.

In order to successfully challenge a lender on the above you will need to go to court - so legal advice is essential.