19 Oct What is a mortgage default?
This is a scenario we hope every person can avoid. However, we cannot stress enough the importance of being informed and the process of defaulting on a mortgage is an important one. A mortgage default means that you violated one or several of the terms of your mortgage agreement. In other words, a default represents the failure to repay a loan according to its terms, usually allowing the lender to find all the ways under the loan contract to get the money lended. This process usually includes demanding full repayment and seizure of the property pledged as collateral (check our post on this topic).
Besides this, a number of other factors can be considered as defaults as well. These factors may include failing to have adequate insurance on the property, failing to pay your property taxes, putting another mortgage on the property, failing to keep the premises in a reasonable state of repair and/or selling the property without the bank’s consent. Again, remember that in a mortgage situation, the borrower is required to make periodic payments to the lender, whether it is weekly, bi-weekly or monthly (see our posts on this). The borrower is also normally required to maintain insurance on the property, and to pay real estate taxes whenever they are due. Due to the fact that the home is the bank’s security for the mortgage loan, it has an interest in maintaining the home’s value. Failing to have proper insurance or failing to pay property taxes, for instance, can jeopardize the value of the property. Failure to do these obligations as stated in the mortgage document, usually within a period of 30 to 90 days, the lender can declare the borrower to be in default.
What happens if you default on your mortgage?
In reading a loan document, the lender will have a list of options they may seek, including demanding the entire mortgage as due and payable, that the loan will be charged a higher rate – also known as default rate – that the bank may take possession of the property – also known as power of sale. So, If you cannot make the mortgage payments, but your home is worth more than the outstanding balance of the mortgage, you may want to sell the house. This way, you may be able to pay off the financial institution and still keep the equity which is the difference between the outstanding loan amount and the amount you received when you sold it. Defaulting on your mortgage can lead to a range of serious consequences. If you are experiencing financial difficulties, before allowing a default to occur, it is a good idea to contact the institution that holds your mortgage.
We, at The Costa Group, encourage those in a temporary financial distress to take action as soon as possible, before going into default with a lender. Before allowing your loan to go into default, contact us to see if other options are available for you.