What is Mortgage Default?

Homeowners from time to time may struggle with making their monthly mortgage payments. It is more prevalent as the economy may sputter or when a borrower loses their job unexpectedly. It is somewhat common for a borrower to be 30 or 60 days late with their payment which will negatively impact their credit score. If the payments become too prevalent or become very late then the mortgage can go into mortgage default.

To be specific here the mortgage is the document which references the home as collateral for the repayment of the promissory note signed at closing. If the homeowner doesn’t make his payments on time or worse, doesn’t pay at all the note can be accelerated as due in full. The resulting next step is the home moves into the foreclosure process. Other ways a mortgage can move to default is by not paying your property taxes or your homeowner’s insurance.

The foreclosure process, once declared, takes 120 days before any action can be taken. If you cannot work with your lender to find a solution such as mortgage reinstatement or loan modification the lender will take control of the home and it will be sold.

Lenders in recent months due to the pandemic, have been much more open to offer forbearance relief whereby monthly payments are not made and put on the back end of the mortgage term. The critical step here is to work with your lender early in the process when you know you are struggling to make your payment.

It is best you have an open discussion with your lender or servicer so you can avoid losing your home and finding the best solution to achieve this.