Discovering Redemption Methods

No secured creditor wants the experience of proceeding with a redemption of collateral that is necessary when a loan goes into default

. Regardless of the unpleasantness that goes into such a proceeding, the holder of a secured loan must be prepared to claim its interests. In the event a debtor fails to repay his loan, will such a lienholder know how to claim the secured assets? There are several ways to redeem the property that is legally due in the event that a secured loan goes into default. These methods vary in forcefulness and costs.

Voluntary Agreement

Voluntary agreement is the best option for both parties. The creditor avoids costs and the debtor avoids fees. In such an arrangement, the party in default either hands the property over or agrees to sell the property and give the proceeds in payment of the bad debt. Oftentimes, the party owing can sell the assets at a better price than the creditor could. Such a situation is mutually beneficial and prevents embarrassment to the debtor.

Self-Repossession

If a voluntary agreement cannot be made, then the holder of the loan may have to attempt to repossess the property in question. Be aware, however, that just because a creditor feels that the secured property belongs to him, he does not have the right to forcefully redeem it. Although laws vary by state, a holder of a secured loan cannot break any locks or use physical force. In fact, if the debtor simply says no, the secured party creditor may have to leave without the property.

Court Action

When voluntary agreement and self-repossession have not worked, it is time to take court action. At this time, the lender will need to pay court costs and possible attorney fees. However, if the lawsuit is successful, he will have the backing of the law, along with the sheriff, to finally take possession of the assets. In the event of a court action, the lender will be required to give notice to the debtor and a hearing will be held.

The willingness to redeem assets in a secure loan is essential to being a successful secured party creditor. If a lender finds himself in the unfortunate situation of repossessing property, it is best to always start with the least forceful means. A voluntary sale would be beneficial to both the creditor and the debtor. If a court action becomes necessary, the reality is that the court has the final authority. If, however, the loan is secured with reasonable assets, paperwork is properly filed, and the lender has demonstrated due diligence in fulfilling his duties as a secured party creditor, the court will be more likely to side in favor of the creditor.

by: Christine Harrell

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