Delinquent Mortgage

DEFINITION of 'Delinquent Mortgage'

A home loan for which the borrower has failed to make payments as required in the loan documents. If the borrower can't bring the payments on a delinquent mortgage current within a certain time period, the lender may begin foreclosure proceedings. A lender may also offer a borrower a number of options to help prevent foreclosure when a mortgage becomes delinquent.

BREAKING DOWN 'Delinquent Mortgage'

Foreclosure is a last resort for lenders, because it is an expensive procedure and lenders typically lose money in foreclosure proceedings. A forbearance agreement is a potential alternative to foreclosure if the borrower's financial difficulties are temporary. Under a forbearance agreement, the lender temporarily allows the borrower to stop making payments or to pay less than the usual monthly payment.

A homeowner with a delinquent mortgage, who doesn’t think his financial difficulties are temporary but who wants to avoid foreclosure, might convince the bank to agree to a short sale. This occurs when the borrower cannot sell the home because he owes more than the home is worth, so the bank agrees to allow the borrower to sell the house for less than the mortgage balance. In some states, the bank will forgive the difference; in others, the homeowner must repay the difference.

A borrower who has been delinquent for several months or even years, but who has not been foreclosed on, may agree to a repayment plan with the lender so that he/she will eventually be current on the mortgage and will not lose the home. The lender might also agree to modify the loan by changing the principal owed, the loan term and/or the interest rate so that the borrower can afford the monthly payments.

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