Secured loans are those that are made by offering collateral against the amount that is lent and are less risky for the lender compared to unsecured loans. The decrease in the risk involved for a lender is because of the fact that the lender is legally entitled to repossess and foreclose the property in case of a default by the borrower. The foreclosure usually leads to a public auction of the property and the unpaid debt is satisfied by the proceeds received through such property.

• A typical example of a secured loan is a mortgage loan which can be obtained by pledging the house or real estate belonging to the borrower or mortgagor. In a mortgage loan it is possible to take out more than one loan since the equity in the property can be utilized many times. However, getting more than one loan will also mean that the mortgagor will pay a higher amount of interest on the loans because of the elevated risk to the lender.
• Another type of secured loan is a non-recourse loan in which the creditor’s financial interest only extends up to the collateral provided. What this means is that if a borrower defaults then the collateral can be seized and sold but not other assets that the borrower may have. Thus these types of contracts protect the debtor from losing everything to the foreclosing entity.
• A foreclosure occurs on a collateral if the debtor or borrower defaults on his or her payments. A foreclosure essentially involves either the transfer of the title of property to the lender which is called deed in lieu of foreclosure and is much more accommodating compared to a direct foreclosure. There many other types of foreclosures such as “power of sale” and foreclosure by judicial sale”. The circumstances and demographics dictate which type of foreclosure is put into action if the borrower defaults.
• Repossession can also occur if an asset is pledged as collateral and involves the lender taking possession of the asset that is pledged. In a noteworthy case in the United States, a car was towed away as repossession with the owner in it. The court decided that it was illegal to breach the peace of a person in such a manner and the repossession was held invalid. However in many cases there is no need for a court order on any type of government intervention when as far as repossession is concerned.
• If a contract leads to repossession then the case may not end there if the proceeds from the asset that is sold are not enough to pay back the amount that is owed. In such circumstances the creditor has the right to sue the debtor for any amount that is lacking to fulfill the financial obligation arising through the contract.

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