When it comes to servicing our borrowers’ loans, taking legal action or appointing an LPA Receiver to recover a borrower’s outstanding debt (and so return capital to investors) is the last possible course of action we will ever take. We call this taking enforcement action or enforcing a loan. When it happens, the loan can be said to be in “hard default”.
Enforcement is very rare, but it can and does happen. We will only enforce a loan if a borrower has continually failed to make interest payments or repay the principal loan amount and we’ve exhausted other routes available to resolve the issue.
Our servicing team works closely with our borrowers throughout the lifetime of their loans and in the vast majority of cases, every possible issue that could impinge on a borrower’s ability to repay is picked up early and managed. Occasionally there are borrowers whose circumstances change so considerably during the term of their loan that they simply can’t afford the repayments later.
There are many reasons why an enforcement may happen. In our experience, it typically occurs when the borrower fails to take enough control of the risks and dependencies existing in his project. In these instances, often the borrower becomes unresponsive to LendInvest’s attempts to contact them, leaving little option but to appoint legal representation that will start the asset recovering process.
While an enforcement is ongoing, investors in the underlying loan may not receive a return because the borrower is not making repayments. However they do continue to accrue income due to them since the interest owed by the borrower continues to accumulate. In some instances, the interest charged to the borrower increases while they are in hard default.
Typically the enforcement process ends with the sale of the property against which the loan was secured. Once the sale and enforcement costs have been subtracted the loan is repaid, any proceeds of the sale above the loan are paid to other creditors or the borrower. If there’s a shortfall in the proceeds received, we may look to recover it from the borrower’s personal guarantor or take action against the borrower and or their company. The time it takes to complete the enforcement process will vary from case-to-case.