Settling secure debt can sometimes be more difficult than settling unsecured debt because the creditor may want to seize the collateral securing the debt you owe. Under your promissory note, the creditor has the legal right to seize the items used to secure the debt. A lender can ask for property, either real estate or personal, to cover the risk when making a loan. The property is called collateral, and the lender can seize the property if you default. You can attempt to settle the debt, but the lender may seize the collateral anyway.
Get in touch with the lender and explain the situation. The only chance of settlement is for you to tell the lender in advance that you cannot make your payments any longer. Many lenders have alternative settlement programs for borrowers with secured debt. The government also offers alternative programs, usually for real estate loans, should you not qualify for the lender's program. Private alternatives include extending the terms of repayment, lowering the interest rate or allowing the payment date to be altered or moved. (See Reference 1).
Try to settle the remaining debt even if the collateral is seized. In the case of mortgages, the house may be worth less than the balance you owe depending on real estate market conditions. So, if your house is seized because of default, you may still owe the deficiency balance to the lender. If so, attempt to come to a settlement. This will show good faith on the your part and can positively impact your credit. Settlements will not balance out the foreclosure, but it will decrease the impact somewhat.
Prevent the lender from seizing the pledged property by carefully negotiating a settlement. The lender may not agree to the settlement if the company thinks the property can be seized and resold for more than the proposed amount. Be sure to arrive at an amount that is slightly greater than the market value of the property in question. This will induce the lender to agree, since they will receive more than what they would get if they resold the property.
Jennifer Allen obtained her Bachelor of Arts in economics and a Bachelor of Arts in political science, and has worked in finance since May 2006. She completed her Master of Arts in human resource management in December 2009. Allen has written a variety of articles that are published on various websites.