What Is The Meaning Of 'Default' In Real Estate?
If you're into real estate, you've probably heard the word "default." When used in financial terms, default means the failure to fulfill an obligation. In the context of real estate, this usually means the failure to repay a mortgage loan. It happens when borrowers miss payments, fail to make payments on time, or stop making payments altogether. A default can also happen when a borrower breaches any terms in the loan contract. For example, failure to pay property taxes or allowing the value of the property to go down by causing damage.
When a borrower defaults on a mortgage, the lender can reclaim the property in order to sell it and get their money back. This is known as foreclosure. Even if the borrower does not lose their property to foreclosure, defaulting on a mortgage can still have repercussions like a lowered credit score or raised interest rates on debt.
Mortgages usually go into default 30 days after a missed payment. Then, the lender will charge a late fee. If the payment is not made within 45 days of going into default, the borrower's account will be sent to collections. From there, the foreclosure process can begin.
Things to know about mortgage default
You can fix a default by paying the original amount due plus any extra fees. This will prevent the property from going into foreclosure. Your credit score will still be impacted for a period of time but will slowly go back up once the debt is paid. Defaults are marked in your credit history for six years after you fail to make payments, however, it will be marked "satisfied" once the debt is paid back, which will help your reputation with lenders.
The best way to avoid going into default on a mortgage is to make your monthly payments on time. If this isn't possible, Inman says to contact the lender in advance and try to figure out payment solutions. Most lenders would rather work with you on a payment plan than have to go through the process of foreclosure. It will save them a headache and could potentially save you your home.