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A mortgage repossession is a situation in which a lender declares a mortgage to be in default and assumes ownership of the home used as the collateral for that loan. The term itself is often used interchangeably with home repossession or house repossession, with mortgage repossession being the favored term in nations such as the United Kingdom and Canada. Typically, this type of repossession action also involves the formal eviction of the homeowner of the property, with that order to vacate issued by a local court and carried out by local law enforcement.
There are two common reasons why a mortgage repossession may occur. One has to do with the failure of the homeowner to make timely payments on the mortgage, either due to negligence or an inability to pay as the result of a loss of income. When attempts to work with the debtor fail, the lender will normally begin legal proceedings to begin a foreclosure and repossession process. Assuming the court agrees with the claims of the lender, an order of eviction is granted, and the title to the property is granted solely to the lender. At that point, the lender is free to sell the property in order to offset the remaining balance on the mortgage and any costs associated with the repossession efforts.
Another possible reason for mortgage repossession has to do with the debtor entering into bankruptcy. Depending on the laws that apply in the jurisdiction where the property is located, the lender may be able to regain control of the property even if the debt was included in the bankruptcy action. This is not the case in every jurisdiction, since some areas do not allow the inclusion of the primary residence in this type of action, or place limits on the ability of a lender to take control of the property. In areas where a repossession with bankruptcy is possible, the court will normally require that the debtor vacate the premises within a given period of time, or face being forcibly evicted.
In some cases, a debtor may choose to voluntarily initiate a mortgage repossession. This is sometimes done in an effort to avoid incurring any additional late fees or penalties, or in an attempt to prevent the repossession from damaging the debtor’s credit rating. While this approach may limit the accumulation of penalties and fees, the lender is still free to submit negative information to credit bureaus, which in turn will have an adverse effect on the debtor’s credit standing.