Although unsecured debts are defined as those that don't give a lender the right to confiscate property if the borrower doesn't pay the loan back, the reality is that a judgment lien can be placed against the property of the borrower. Liens are frequently placed against property, and although the lender won't be paid until the borrower attempts to sell or refinance, the borrower must pay off the lien before he can do so.
Liens: Slow But Effective
Credit and debit lenders (if the debit is attached to an overdraft line of credit) begin the collection process by hounding the borrower with phone calls and notices; if the borrower ignores them, then the lender will secure a judgment against the borrower in the amount of the balance due. The judgment permits the lender to place a lien on your property, including your home. When you try to sell or refinance, you'll be forced to pay the lien before you can close the deal.
Lien Priority
Borrowers who are encountering severe financial difficulties may yet escape the lien by the rules governing lien priority. For example, a borrower who is selling his residence will have other debts to pay first; this is called lien priority, and some debts, like first mortgages and property taxes, have priority over unsecured debt liens. Property taxes get paid first, then (usually) the first mortgage. After that, the date on which a lien was recorded determines when the debt gets paid, with the oldest liens having the greatest priority.
Bankruptcy
In bankruptcy, unsecured debts are usually wiped out -- meaning, they are eliminated entirely. Chapter 13 permits the borrower to work out a repayment arrangement, sometimes for a negotiated settlement, over a three- to five-year period. Some debts, like loans that secure a home and car, must be paid in full. Chapter 7 usually forces a liquidation of assets, including the home. Whatever proceeds are left from asset sales are used to pay creditors. If there aren't enough assets to pay the unsecured debit lien, which is at the bottom of the pile, it will be eliminated.
Unsecured Liens and Foreclosure
Although an unsecured lender may put a judgment lien against your home, it may not foreclose. Only lenders that have a secured interest in the property, like a mortgage lender or property tax authority, can foreclose. Other types of unsecured liens, such as those brought because of unpaid utility or home improvement bills, work the same way: they cannot foreclose but can place a lien. If an unsecured lender is threatening to foreclose, it has violated the law. The Fair Debt Collection Practices Act requires debt collectors to abide by strict rules regarding delinquent accounts.
0 comments:
Post a Comment