What happens when a loan defaults?
A borrower is required to meet the Terms and Conditions set out within the loan agreement when it is signed. This includes timely repayment of the capital and interest due at the end of the loan term.
Failure to meet these obligations means defaulting the loan.
Just because a loan has defaulted does not mean your capital is lost. It means that the borrower has been unable to keep to the terms of the agreement for various reasons. We make arrangements to sell the security to recover the capital plus interest when this arises.
Depending on the loan agreement, it will require a specific action to recover the debt. Below are the sequences of recovering a loan that has defaulted.
What happens when a property loan is overdue?
We allow borrowers, where contact has been made before the repayment date, an additional time as long as they have demonstrated when payment will be made. However, where the borrower does not contact us directly or can not provide evidence that the pre-determined exit strategy is followed, we shall take further actions and possibly default the loan.
If a loan status is changed to ‘Default’ and we have received no clear indication of how and/or when we will receive the payment of capital and interest, we will take action to recover the outstanding debt. That means we shall appoint professional receivers, Templeton LPA. The steps taken when the borrower fails to repay the loan on the repayment date are as follows:
1) Notifying the Borrower
We will send out a final demand for full repayment of the loan. This letter also provides them with formal notice that the loan is now due for repayment immediately and that the security is now enforceable as per the loan agreement. The demand letter has an expiry date of 14 days after which we will be taking recovery action, including the appointment of a receiver.
2) Appointment of a Receiver
Upon no response or accommodating solution, we will appoint a receiver to recover the outstanding debt owed. Our preferred Receiver is Templeton LPA. There will be a short delay before the acceptance of appointment is done.
3) Possible Exit Strategy determined by Receiver
The receiver will carry out various investigations and provide a strategy report back to us. The report provides the recommendations as to the best way to handle the sale of the security to recover the loan.
Any notices (e.g if the property is rented out) are also served to the tenants to ensure any future rent is paid directly to them and not the borrower.
4) Property Marketed
If the borrower cannot settle or provide an alternative solution to repay the debt and keep the security property within a reasonable time, the receiver will place the property on the market for sale. Their objective will be to achieve the best possible price for all parties concerned. Upon the completion of the sale, funds are returned back to the lenders and the loan closed.
We allow borrowers, where contact has been made before or soon after the repayment date, an additional time as long as they have demonstrated when payment will be made. However, where borrowers do not contact us directly, we will commence default proceedings to recover the capital and interest by selling the asset.
This begins by notifying the borrower.
1) Notifying the Borrower
We will send out a default notice to the borrower for full repayment of the capital and interest, or at minimum, the interest for them to renew the loan. This letter also provides them with a formal notice that the loan is now due for repayment immediately and that the security is now enforceable as per the loan agreement. The demand letter has an expiry date of 14 days, after which we will be able to begin the process of arranging the sale of the asset.
2) Arranging the Sale
If no response is forthcoming by the borrower, we will arrange the sale of the assets. As the assets are already in our possession, the sale can begin immediately after the default notice period is served. To do so, we start by researching the best exit route that will achieve the highest return of funds to all parties.
Additional costs may apply to make repairs to the asset to be suitable for sale in the hope of achieving a higher price.
Once a suitable exit is determined (either via auction or private sale) we will arrange the sale.
3) Sale of the assetThe assets get sold at the earliest opportunity, either via auction or private sale. After receiving the cleared funds, the loan will be closed on the system and the funds returned to the lenders.