Applying for a payday loan can be an excellent way to repay some of those short-term bills, or for that extra bit of cash when things are difficult, financially. However, there are some risks attached to taking out a payday loan, which can lead to resulting consequences.
On whether a debt collector, representing your lender, can take away your house, the short answer is no, a lender cannot take your house. However, a creditor whose loan is secured by your house can foreclose on the loan and take the house, and depending on your state laws, a lender without a security interest in your home may be able to put a lien, which is a type of legal claim, on it, which could result in repossession.
What is a Lien and how can a lender get one on my house?
A lien against your house will show up in the title work when you attempt to sell your home. In order to clear the lien and proceed with the sale, you will have to pay it. A lien holder, or the person who obtained the lien against your house, cannot force you to sell it or take it from you. They simply place the lien on your biggest asset, your home, so in case you ever sell it, they can collect what you owe.
There are three types of liens that someone can get on your house. These are:
- Tax liens
- Mechanics liens
- Judgment liens
A tax lien is just what it sounds like and may be placed on your home by a government entity to which you owe taxes, such as property taxes or state or federal income taxes.
A mechanics lien may be placed on your home by a carpenter, plumber or general contractor in order to secure payment for work done on the home.
A judgment lien is the type of lien that a lender may be able to get, but there is a process that they must follow in order to do so, as well as state laws which may limit the amount of any lien they are able to put on your house.
According to Realtor.com, liens are not as uncommon as home buyers and sellers might think, and are no reason to panic. Simple liens can generally be cleared up at the time of the sale of the home by working with the lien holder to pay the lien from the proceeds of the sale. More complicated liens, it says, may however require the assistance of an attorney.
Secured vs. Unsecured Debt and Foreclosure
In order to understand who can take your house when you owe them money, you must first understand secured vs. unsecured debt on your loan.
A secured debt is a loan that you take out and use your property as collateral in order to “secure” the loan. The main type of secured debt is a mortgage. When you borrow money to buy a home, you use the home as collateral for the loan; this means that the home secures the mortgage and if you do not pay the mortgage, the bank can foreclosure on the loan and take the home that is securing it.
If you are facing foreclosure, you should contact an attorney in your state immediately to help you determine what your best course of action may be. Even if you do not wish to keep your house, you may be able to protect your credit and prevent the mortgage company from coming after you for any deficit from the sale of your home.
Unsecured debt makes up the majority of consumer debt and includes all the bills you owe or loans you took without using property to secure the loan. Unsecured debt consists of things such as:
- Medical expenses
- Credit card bills
- Utilities (phone, internet, electric, gas, water, etc.)
- Personal loans
- Installment loans
- Tuition and student loans
A debt collector attempting to collect on an unsecured debt cannot take your house. If one has threatened to take your house, they are in violation of the Fair Debt Collection Practices Act (FDCPA), a federal law, which specifically prohibits lenders from threatening to take any action it cannot legally take in order to get a consumer to pay a bill. If a lender with an unsecured debt has threatened to take your house, you should consult a consumer attorney in your state about the violation. You may be able to recover money from the lender for its violation of the FDCPA.
Lenders collecting on unsecured debt can call you, write you letters, report the unpaid debt to the credit reporting agencies, and if you still do not pay, can file a lawsuit against you. Once a debt collector has sued you, it may then be able to put a lien on your house, if state law allows it, but only once it has followed the proper court procedures.
Overall, if you don’t pay a debt secured by personal property, a lender has the right to take the property pledged as collateral for the loan. The lender can’t just walk into your house and take your couch, however, and if your loan has not been secured by your property, then a lender cannot take away your home.