The lender expects you to pay your monthly mortgage principal and interest payments on time when you apply for a home loan. Your mortgage could be canceled if you default on your payments or fall behind.
You may also be liable for mortgage with defaults due to other reasons.
- Failure to pay property tax
- Failure to have adequate homeowners insurance
- Home damage that reduces its property’s value
- Without the lender’s approval, transfer of the property’s title to a new owner
- You fail to occupy the house, even though you are required to by the mortgage contract.
What Are The Consequences Of Defaulting on A Mortgage?
Lenders can demand full payment of the outstanding mortgage balance if you default on your mortgage. You will receive a letter from the lender requesting payment in full for what is called an “acceleration condition”. This clause gives you a period to pay your loan back. Lenders can foreclose and evict you if you don’t pay the amount.
Lenders usually file one or more of the following:
The lender will mail a demand letter within 30 days to pay the loanee. If you do not pay, the local sheriff’s or the court will hold an auction to purchase your property. Judicial foreclosures are allowed in all states.
Instruct foreclosure: The lender may file a suit against the homeowner if the balance of the home loan exceeds its property value. If the borrower doesn’t pay within the specified period, the lender will take over the property.
Power or statutory foreclosure: The lender sends notices asking for payment within a specified time frame, just like with a legal foreclosure. The mortgage company holds an auction if the borrower is unable to pay within the specified time. This type of foreclosure can be used in several states.
A foreclosure on your home could lead to a big credit hit. Additionally, the foreclosure report will be on your credit report for up to seven years. Not only will a foreclosure affect your credit score, but it could also make it more difficult to get a new mortgage.
How Long Does it Take to Default on A Mortgage?
Here’s the timeline that you can use to avoid foreclosure and default on your mortgage.
First missed payments: Most lenders offer a 10 to 15-day grace window to help you make your mortgage payment without imposing a late charge.
Mortgage default: When the loan becomes 30 or more days late, credit bureaus are notified. Lenders may declare the mortgage in default if the borrower fails to pay the mortgage loan on time. The lender mails a notice to default to the borrower.
Pre-foreclosure: If the borrower cannot make past-due repayments and keep the loan current by a given date, the foreclosure will take place. Pre-foreclosure refers to the period between default and the completion of the foreclosure process.
Foreclosure: A petition is made by the lender to request that the court open foreclosure proceedings. The court also names a trustee to oversee the auction. Nonjudicial foreclosures can be taken immediately by the lender and completed within a few months.
Notice of trustee sales: The trustee posts a notice that describes the property, and when the auction will be held.
Notice for eviction: It doesn’t matter if the property is sold or reverted to the lender under REO. A notice of eviction is sent to the occupants. They must vacate the property within a certain time frame.