The term mortgage refers to a real estate lien on a person’s property (i.e. the borrower) that is placed by the bank or financial institution (i.e. the lender) that provided the money for the property’s purchase. A mortgage is comprised of two types of documents: a promissory note, and a deed of trust. The promissory note acts as a contract which states that the borrower agrees to repay the lender for the money borrowed, in addition to the agreed upon interest. A promissory note holds the borrower responsible for repaying the loan, even if the borrower sells the property.
A deed of trust is what acts as a lien against the property, meaning if the borrower does not repay their loan, the lender may force repayment through foreclosure. A deed of trust also guarantees that the lender will get their money back, even if the borrower fails to pay that money back.
There are different types of mortgages that are differentiated by their repayment terms. It is important for borrowers to choose the right mortgage for their financial needs in order to avoid repayment disputes, and ensure stability. In order to obtain a mortgage to purchase property, a potential borrower will need to submit an application, which contains the following details:
- The value of their current assets and debts;
- Their employment history and current income;
- The source of their downpayment; and
- Their credit history and credit score.
Mortgage defaults happen when a borrower fails to make one or more of their mortgage payments. After a certain amount of time, the mortgage loan may go into default status. Once a mortgage loan is in default status, a lender may then take action in order to take over the property in question. Thus, mortgage defaults jeopardize the borrower’s ownership of the property, unless something is done to remedy the default status.
Are There Any Legal Consequences for Mortgage Default?
Depending on the circumstances, the mortgage lender may be willing to work with the borrower in order to make up for the missed payments. Unfortunately, in many cases, mortgage defaults lead to some serious consequences. Some examples of these consequences could include:
- Foreclosure: Foreclosure is the sale process in which a property is sold at public auction in order to satisfy the debt owed to a lender from a borrower. The proceeds of the sale of the property go to the mortgage company in order to make up for lost payments. However, there is generally a grace period in which to make missed payments even after the lender has begun the foreclosure process;
- Other Property Liens: The lender may file a lien on other properties owned by the borrower, in order to make up for missed payments. If the borrower sells or refinances a property with a lien attached, the lender maintains the right to be paid out of the proceeds from the sale of the property; or
- Affected Credit Score: Most mortgage companies will generally send a notice to the borrower’s credit company, informing them of the default. This could immediately and negatively impact the borrower’s credit score, which could later on affect the borrower’s ability to secure future loans, lease housing, etc.
In order to make up for missed payments, a borrower may have their wages garnished. This process is initiated by the court ordering the borrower’s employer to take a portion of the borrower’s paychecks to be sent to the court, or an agency that processes debt payments. This withheld income is applied towards the missed mortgage payments. Some lenders will sometimes agree to a new debt arrangement in order to avoid court interference.
What Factors Could Lead to a Mortgage Default?
A borrower may default on their mortgage due to several different reasons. Mortgage default may be caused by:
- A miscalculation of bank account funds or earning capacity;
- A miscommunication between a borrower and their lender; or
- One party misunderstanding the terms of a real estate contract.
As previously mentioned, there are different types of mortgages, and it is important to select the mortgage best suited to your financial needs. If a borrower breaches the contract made with their lender, the lender is granted the right to sue for damages.
Mortgage fraud could also lead to a mortgage default. Fraud occurs when a borrower intentionally provides false information in order to obtain a mortgage, or obtain a rate that they want. This could eventually lead to a mortgage default when they can no longer maintain the illusion they presented.
Do I Need an Attorney for Mortgage Defaults?
Defaulting on a mortgage is a serious matter, and could lead to losing your home. Thus, if you are having mortgage issues, you should absolutely consult with a skilled and knowledgeable real estate attorney in your area.
An experienced real estate attorney can help you understand the terms of your mortgage, as well as whether there are any defenses available to your specific case. Additionally, they can help you determine your best course of legal action. Finally, they can represent you in court, as needed.