> For the complete documentation index, see [llms.txt](https://mortonn.gitbook.io/whitepaper/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://mortonn.gitbook.io/whitepaper/2.mortonn/c.-how-does-mortonn-work/loan-defaults.md).

# Loan Defaults

<figure><img src="https://3807180264-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2Farwvfd8Ecyl1lhp3HKdr%2Fuploads%2F1PAnW7GsGFNeULr70Q8s%2FLoan-Defaults.png?alt=media&amp;token=3e4a7346-11ed-4dd5-98ee-b99a1c8a5fb9" alt=""><figcaption></figcaption></figure>

Loan defaults occur when borrowers fail to repay their debts according to the initial agreement, i.e., they fail to make repayments within two months after the final repayment date. In this case, collateral assets will be sold following three steps: firstly, an attempt will be made to auction the collateral as a whole at a minimum sale price slightly higher than the loan value; secondly, if the whole auction is unsuccessful, a part of the collateral will be auctioned; finally, if the first two steps fail, lenders will be compensated from the Mortonn Trust Insurance Vault, which is backed by the assets of the entire Mortonn community, ensuring lenders' interests and the platform's healthy operation.