Can a Mortgage Company Take Your Car or Other Property if You Stop Making Payments?

It is often a misconception that mortgage companies can only seize real property (like a house) as security for a mortgage loan. However, the reality is that if you stop making payments on your loan, the lender can take many forms of property from you, including your car. This article explains what happens when you default on your mortgage payments and how your lender can recover their assets.

Understanding RePossession: A Lifecycle of Default

Repossession is the process by which a lender seeks to recover an asset that has been pledged as security for a loan. If you stop making the required payments on your loan, the lender has the legal right to repossess that asset. This can apply to various types of personal property, such as a car, regardless of the initial type of loan involved.

Many people believe that since the term 'mortgage' is commonly associated with real estate, a mortgage company can only seize real property. However, this is not entirely accurate. In certain instances, financial institutions can take possession of personal property, especially if specific property was used as collateral at the time of the loan.

Liens and Lenders: Legal Rights and Recourse

When you take out a loan, interest is often attached to your property in the form of a lien. This lien serves as a record of the loan and guarantees that the lender can recover its money if you default. Lenders have the right to repossess assets to recover the loan, which can include your car.

Here’s how the process typically unfolds:

No Payments RePossession Rights. If you stop making payments on your loan, the lender can use the lien to repossess your car or other pledged assets. Sale at Auction. Following reposssession, the lender is entitled to sell your property at auction to recoup the remaining balance on the loan. Costs and Fees. In addition to the remaining loan balance, you must also pay for any repossession, reconditioning, and auction fees. If the proceeds from the sale do not cover the debt, a deficiency judgment can be sought, adding further financial burden. Credit Damage. A deficiency judgment and repossession will result in a significant hit to your credit score, negatively impacting your ability to obtain future credit for approximately 7 years.

Securities and Collateral: What Does this Mean for Your Property?

The type of securities you provide to the lender can vary. For a mortgage, typically only the property being mortgaged serves as security. However, if the mortgage includes other properties, these can also be seized if you default.

Notably, if you finance a car with a loan that was intended for a different purpose (such as a mortgage), the car is considered personal property. While the car is not typically security for the mortgage itself, the lender may have the right to repossess it if you default on the loan.

Conclusion

Stopping payments on your mortgage can lead to severe consequences, including the repossession of any property you pledged as security. Understanding the process and what liens and securities mean in the context of your loan is crucial. It is always best to communicate with your lender as soon as you encounter financial difficulties to explore possible solutions before defaulting.

For more information, consult your loan terms, seek legal advice, or contact your lender directly. Remember, taking any action is better than allowing the default to proceed unchecked.