The difficult economic conditions in Bermuda have led to an increase in the number of borrowers who are defaulting on their obligations to repay loans from the Island’s banks, or other lenders.This increase has led to banks or other lenders taking steps to recover their investment in the borrower and that, in turn, has led to an increase in the number of borrowers who have lost their assets, or suffered significant financial loss.For such borrowers, there will be no relief from Government, which recently announced that there will be no financial assistance given to persons who either own their own home or who have sold their property within five years of the application for assistance.The new Government measures go further; it is no longer possible to obtain mortgage interest/arrears, property insurance, personal/household and comfort allowances, meaning that there is no prospect of being able to obtain assistance for the payment of some of the arrears under a mortgage.So, where does that leave the defaulting borrower? Well, the good news is that all banks in Bermuda want to work with such individuals to devise a solution to their financial problems. This could take the form of a meeting with the borrower to review the borrower’s budget; reorganising the loan; paying interest only on the loan; or deferring or reducing loan repayments for a short time.The banks will expect the borrower to make the first approach.Too many borrowers just hide their heads in the sand and believe if they say nothing to a lender, the problem will go away. But that only makes matters worse, so if you find yourself in such a situation, be sure to make an appointment to sit down with a bank representative. There is no stigma attached to admitting a monetary problem.If the borrower does not contact the lender, then the borrower can expect no concessions since the lender has an agreement that it would lend the money on condition that it was paid back with interest and by instalments on set dates.The agreement or mortgage will set out what is to happen if the borrower does not comply.In the case of a mortgage, the bank reserves to itself the right to sell the property over which it has granted the mortgage.This is a step of last resort if attempts to help the borrower have failed and the loan remains in arrears/default.No borrower wants to lose their property to the lender, particularly where a property has been in family ownership for generations.Many borrowers took out loans when the economy was booming and when employment was plentiful.The loss of an income will have a severe effect on any borrower’s ability to repay, so the borrower must attempt to rectify the situation.The borrower can seek to rent out the property or part of it with the bank’s consent; the borrower can list the property for sale, and the borrower can seek the assistance of third party loans from family and (wealthier) friends.If the loan was other than a mortgage on the property, can the borrower sell possessions? Could the borrower raise money on any other assets (although if in debt already, is this wise?)?Government have now made it possible for an individual to make a partial withdrawal from his pension in the face of financial hardship.For borrowers in default on a mortgage, this is a step that is a very last resort and is not recommended.It represents a short term fix and deprives the borrower of what would otherwise be a valuable pension at retirement having made and having the benefit of full pension contributions.Any borrower in financial difficulties must be reasonable and practical. It may be that the only practical option is to agree a sale of the property before the bank/lender has to take proceedings to obtain a possession order or otherwise foreclose on the property.A borrower will have to look at what equity exists in the property in a falling property market, that equity may quickly erode.Perhaps it is far better to accept a lower sale price to preserve as much equity as possible by a quick sale, so that at least the borrower has the opportunity of that cushion of equity, which could be the difference between starting again on the property ladder or renting an affordable property.Many borrowers will attempt to spin out attempts by the lender to sell the property, but a borrower has to be realistic after all, the borrower entered into an agreement to repay on the strength of the lender agreeing to loan money.If he can no longer repay, the lender is entitled to recover its outlay by taking possession and selling the asset on which the loan has been secured.Attorney E. Kelvin Hastings-Smith, FCIArb, is Counsel and Manager of the Litigation Practice Group at Appleby. A copy of Mr Hastings-Smith’s column can be obtained on the Appleby website at www.applebyglobal.com.This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.