What Does “Default” Mean In Real Estate?
A “default” occurs when a borrower does not make his or her mortgage loan payment and falls behind. When this happens, he or she risks the home heading into the foreclosure process. Usually, the foreclosure process is started within thirty days after the due date is not met.
When a mortgage loan goes into default, the agency that is the loan holder has the option of taking over the property. Many people do not realize that defaulting on the loan can result in losing their property. Even if the property is not lost during a foreclosure, having a default on your credit report will lower your credit score. This will affect your ability to work with the lender or obtaining any new loans in the future.
When a new mortgage loan is issued, there is a monthly due date set on which the payment is always due. Oftentimes, a mortgage company will offer a grace period of at least one week — sometimes two weeks. If a payment is received during this grace period, it will not be considered late. Late fees will be applied if payment is not received during the grace period. And after thirty days without payment, the mortgage is considered in default.
The process that will occur after the loan goes into default will begin after the grace period has passed with no payment being made.
The first step your lender will take is to charge you a late fee and send you a certified letter stating that you are in default. At this point, the lender may work with you to make a partial or even an entire payment. This will help to bring your account out of collections.
If no payment is made after 45 days of default, you will find your account in collections. You will find here that the lender will be attempting to contact you often.
You will receive an official notification of default after two or three months of default. Once this happens, the lender will start the foreclosure process. When this occurs, the property could be sold or auctioned and you will be forced to leave the property.
The best way to avoid foreclosure is to never allow your mortgage to head into default. If you find yourself in a financial bind or you are having financial issues, you should contact your lender and speak to them about solutions to making your payments and not falling into default.
Lenders would rather work with you than have to go through the hassle of starting the foreclosure process. The bank does not want to take over your property, and you do not want to have to leave it. The best way to be sure this does not happen is to make your payments on time every month.
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