Mortgages are considered to be in default when they have not been paid by the mortgagee. A defaulted mortgage has a negative effect not only on he existing mortgage but also on any future mortgage applications as well as credit applications. Mortgages in default can cause the person to lose their property to the mortgagor due to their failure of payment, and have serious consequences for the future of that person.
Like most “loans”, mortgages have a set date for the payments to be made on them towards the entire amount owed. These dates are usually the same ones every month, and will be specified when the mortgage is first obtained and signed. Similar to certain credit accounts and payments, the due date will include a grace period which will give a little “breathing room” to the mortgagee in case they do not acquire the funds by the given date, or happen to forget to make a payment on time. When dealing with most credit accounts a grace period generally consists of a few days, usually 5.
However, with mortgages, the grace period can be as long as a week, or two depending on the specifications made. Once a month’s time has passed past the due date and no payments have been made, the mortgage will be considered to be in default. This can seriously damage one’s credit score instantly, and it will be recorded by a credit agency on a credit report for the mortgagee. All this being the damage it can do on a person’s credit reputation, but not counting in the late fees that one can also face for failed payments, and even fees to get the account out of default. If a certain period of time passes with the account being in default, and no attempt of payment has been made, the mortgagor can hand over the account to a collections agency.
This agency will contact the debtor and attempt to collect on that debt as rapidly as possible, usually without any sort of flexibility in payments. This is due to the fact that all the agency wants to accomplish, is collect on the money owed for the mortgage company or bank as soon as possible. In turn the person owing the money should want to get their account out of default and bring it back to current in the same time restraint. After a period of 2-3 months of an account being in default, a bank will begin its foreclosure process by taking the necessary steps to notify the debtor. First they will sent notices in regards to the account being in default to provide the debtor with an opportunity of paying all of their missed payments right away. If this is not done, the bank will then take over the property.
Once a bank has acquired a property through foreclosure, they may choose to sell that property at an auction. The bank must enlist a public notification providing details of the foreclosure once this has happened prior to the auction. The debtor may have the opportunity to buy the property back at the auction before it goes public, if they can come up with the amount priced for the house in cash currency and purchase it on the spot. Mortgage defaults should be avoided at all costs, and people in danger of such action should seek financial counseling immediately before the issue worsens.
Legal Remedies for Lender
The lender involved in a loan is protected in the recuperation of their funds through many laws and guidelines. These details are included in the mortgages themselves outlining the payment options, as well as penalties involved in missed payments. The security of a mortgage allows the lender to hold onto a form of collateral as they oversee the payments being made towards their debt. This collateral may be used against the borrower should they choose not to pay back the amount owed in due time, or at all. The title of a property is held through a lender or a trustee established by the lender, in case the borrower does not make payments on their loan. In the event the account goes unpaid for a specified period of time, the lender or trustee has the right to sell the title of the property (belonging to the borrower) to collect the funds owed to them by that person. There may also be fines and penalties associated with late and missed payments, as well as to bringing the account to good standing.
Legal Remedies for Borrower
The borrower in a loan is protected by a series of four laws that prevent any wrongdoing by the lender towards the borrower themselves, the debt, or their credit. These acts are meant to fully disclose any information involving the mortgage to the borrower ahead of time, and not being surprised with hidden information later. This information can deal with the fees associated with closing a mortgage, in an estimated amount, as well as the percentage rate imposed on the mortgage. The percentage rate must be clearly stated under the law, with any circumstances or pertaining changes, as well as how the payments will be made and their due date.
The remaining laws also protect the borrower from being discriminated against by a lender, and denied a loan. This disallows any lender from refusing credit loans to people due to their race, religion, sex, etc… Also, the final law states that the borrower has the same right to view their credit information as the lender uses to establish their approval or disapproval of a credit loan. This can relate to a credit report, score, and any information that is entitled by such a report.