More debt than money

• High gas prices, health problems and job loss can cause even the most financially responsible person to live paycheck to paycheck--not to mention divorce, disability and other unforeseen circumstances that can drain bank accounts. According to the Council of Mortgage Lenders, (CML), close to 19,000 homes were repossessed in the first half of 2008, a 48 percent increase from the previous year. When a borrower finds himself with more debt than money, he may also find himself with fewer possessions.
  
  

The Loan Agreement

• When a borrower defaults on a loan agreement, the lender has the legal right to take back possession of the property. Most often this is done with car and home loans. Loan agreements contain a clause that includes what will be used for collateral if the borrower should default on payments. For a mortgage loan, it is more than likely the house, and the same is true for a car loan. When the agreed-upon payments have not been met, a repossession may occur.
  
  

Car repossession

• Before a car or a home is repossessed, the lender will notify the borrower that it has not received payment. In some instances, missing payments may be an oversight. However, if the car loan is not taken out of default, the lender will notify a third-party company that a car needs to be repossessed. The person hired to repossess the vehicle will usually wait at the borrower's address during evening hours to avoid confrontation, but a repossession can also take place at the borrower's place of employment. The company hired to repossess the vehicle will notify the police department to inform them of the repossession, in case the owner thinks her car was stolen.
  
  When the lender has possession of the property, it will provide the borrower ample opportunity to bring the loan out of default by making full or partial payment. If not, the car will be auctioned off and the purchase price will be deducted from the loan. The borrower is still responsible for the outstanding loan, which now includes repossession and auction fees. If the debt remains outstanding, the lender can seek a court judgment to have the borrower's wages garnished.
  
  

Home repossession

• Before a home can be repossessed, the borrower has to be given fair warning. The laws differ from state to state as to how much warning has to be given. Normally, there has to be three to six consecutive mortgage payments missed before the lender will start the repossession process.
  
  The lender will petition the court for a proceeding, and if the loan remains in default, a possession order may be issued by a judge and the borrower will be ordered to leave the property.