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So, can I lose my home for payday loan default? The simple answer is no. If you don’t repay your payday loan a lender can’t seize your house if you haven’t declared it as collateral. If a creditor agrees to use your home as security on a loan they can foreclose. That means they foreclose on the loan and take the house. Depending on state laws, a lender without a security interest in your home may be able to put a lien – legal claim – on it. This could result in repossession.

Key Points:

  • If you have declared your home as collateral within a secured debt, you could lose it.
  • A lien could be placed on your home, meaning that you must repay debts in order to sell it.
  • You should contact an attorney if a lender is threatening to seize your home over an unpaid, unsecured loan.

If I Can’t Lose My Home What Else Could Happen?

If you don’t repay your payday loan your lender could take out a lien against your home. It will be in the title work when you attempt to sell your home. To clear this and sell your house, you will have to pay it off. This means that they cannot directly seize your home. It does mean that to sell your home, you have to pay them what you owe.

Types of Liens that Can Be Placed On Your Home If You Don’t Repay Your Payday Loan:

  • Tax Liens – There are placed on your property by a government agency to whom you owe taxes.
  • Mechanics Liens –  A carpenter, plumber, or contractor places this on your property to ensure you pay them for their work.
  • Judgment Liens – This is the type of lien a lender organize. These are not uncommon and you shouldn’t panic if a judgment lien is placed on your home. These can be settled when you sell your home by working with the lien holder to pay it from the money you acquire through the sale of your house.

More complicated liens may require you to seek legal advice. You may want to read The Best Way To Repay Your Debts.

Secured vs Unsecured Debt And Foreclosure

If you don’t repay your payday loan it makes sense to understand who can seize your house if you owe debts. To do that you must understand secured vs unsecured debt.

  • Secured Debt

A secured debt is a loan where you use an asset as collateral to ‘secure’ the loan. The most common form of secured debt is your mortgage. Mortgages are the money lenders lend to you to buy a home. So, secured debt is when you use the home as collateral to acquire the loan. If you fail to pay the mortgage, the bank can foreclose on the loan and take the home that you used to secure it.

If you find yourself challenged with foreclosure, you should contact an attorney to help you figure out a plan or arrangement to pay.

  • Unsecured Debt

Unsecured debt is the most common form of consumer debt and includes the bills you owe that you haven’t used collateral for. Common types of unsecured debts include medical bills, credit card bills, utilities such as gas and water, personal loans, and student loans.

A debt collector dealing with an unsecured loan cannot seize your home if it’s not declared as collateral. They have no right to it directly – they are simply entitled to the money you owe them. If this is your situation but they have threatened property seizure, they are violating the Fair Debt Collection Practices Act, and you should consult an attorney and report them.

Instead, they can call you, write to you, and report you. They can even file a lawsuit against you – but they cannot take your home. Find out more about what happens if you can’t repay your payday loan.

This can damage your credit score so it makes sense to check it for free each year and see where you stand. You can also read about how having a payday loan affects your ability to get a mortgage.

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