The best way to avoid going through the enforcement process is to be careful who you lend to. Organised, rational and decent people, who have problems paying their mortgage, will usually solve the problems or sell their property before the lender has to enforce. These people will communicate frankly about their situation and volunteer to put the property on the market. They will give updates on how the marketing program is proceeding and consult the lender about the reserve.
There is no logical reason for a borrower to bury their head in the sand and run up legal fees and penalty interest. Nor is it logical to allow a lender to sell the property as mortgagee in possession when it is far better for the borrower to control the sale themselves.
Accordingly when mortgage enforcement is required it is almost always because the borrower is:
- disorganised or lazy;
- delusional and/or malevolent;
- elderly or vulnerable and has been hoodwinked;
- Underwater on the property due to caveat loans or cross-securitisation causing negative equity (so they cannot sell the property themselves).
In making sure your loan never defaults the first thing to do is to search the borrower and guarantors on Google. If they have a significant profile on the Internet that is a good thing, especially if it is spread over multiple websites and a long period of time. This will allow you to get a feeling for what sort of person they are. If they are in business (which they should be because you are doing a commercial loan) then they should have a company website. There should be Google Reviews and blogs that mention them and their product.
If you find negative reviews, if you find blogs accusing them of being shonks, then they may well be shonks. If on the other hand there is a lot of material that is all positive then you are probably on a good wicket.
If there is no material on the Internet, or it is extremely scant, then you need to dig deeper. A meeting with the borrower at their accountant’s office, or even better at the security property, is a good way to get a feel for who they are and what they are about. You can even do a Zoom interview and record it.
If the borrower is disorganized or lazy, if they are delusional or malevolent, elderly or hoodwinked, you are going to be able to detect it in the interview. Most successful lenders will never do a loan without personally interviewing the borrower because they find it such an effective filter. If the security being offered is the borrower’s home, or place of work, and you are inspecting it (and that’s always a