Home/Foreclosure

• If you use your home as collateral and don't make payments in a timely manner, the bank may start foreclosure proceedings. Eventually you will be required to leave your home and the home will be auctioned at a sheriff's sale to the highest bidder. After the home is sold, there could be a deficiency balance remaining which you will be responsible for paying. It is best to call your lender to see what type of repayment schedule can be arranged.
  
  

Depreciation

• During the term of your loan, collateral can lose its value. When this happens, your balance could be greater than the market value of your home. This can prevent you receiving enough money to pay off your home when you sell it. A slow economy can contribute to a slow housing market which in turn affects the value of your collateral. On the other hand, your home can increase in value if the demand for homes is significant.
  
  

Mortgage Filing

• In order for your home to be used as collateral, you must go through the lending process and sign a mortgage document along with other paperwork. The mortgage must be filed with the county courthouse in the public records which allows the lien on your property to be protected. If anyone from this point forward does a title search on your property, they will see that a mortgage or lien has been filed which indicates your home is being used as collateral for a loan.
  
  

Repossession

• An automobile can be used as collateral and it can be repossessed if you do not make timely payments. When an automobile is repossessed, the debtor may be responsible for the deficiency balance. The debtor may also incur some fees for the repossession of the vehicle. Repossessions will show up on a debtor's credit report.
  
  

Secured Credit Card

• If your credit is in bad shape, it may be difficult to get approved for a credit card. Some banks offer a secured credit card. You must open an account with the bank. The bank will then will approve you for a credit card, but the limit on the card will be based on the amount of money you have in your checking account. If you default on the credit-card account, they can withdraw funds from your checking account to pay the credit-card debt. Your bank account is actually the collateral.