What Is a Delinquent Mortgage?
A delinquent mortgage is a home loan for which the borrower has failed to make payments as required in the loan documents. A mortgage is considered delinquent or late when a scheduled payment is not made on or before the due date. 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.
- A delinquent mortgage is a home loan where the borrower is late in one or more required payments.
- Borrowers who miss payments will often be subject to penalties and fees, and may see a negative impact on their credit score.
- Mortgages that are overly delinquent risk going into default and the home into foreclosure.
- Sometimes lenders will work with borrowers to avoid default when they become delinquent.
Understanding Delinquent Mortgages
Late fees are usually applied to missed payments. The amount of the late fee depends upon the lender, as well as the terms of the borrower's mortgage. If a late fee isn't applied initially, that doesn't mean that the mortgage is not delinquent: some lenders may chose to wait until a payment is more than 30 days late before beginning collection procedures.
A delinquent mortgage can lead to foreclosure, but 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.
A delinquent mortgage can affect the borrower's credit score and impact his or her ability to secure loans in the future, which is why borrowers should make every effort to pay their mortgage on time. However, if the borrower suspect that he or she won't be able to pay on time, it is imperative that he or she reaches out to his or her lender promptly. In some cases, the lender may have ways to help the borrower avoid a delinquent mortgage altogether.
Delinquency and Default
Notice of default is a public notice filed with a court stating that a mortgage borrower is delinquent on a on a loan for an extended period of time. This is one of the first steps toward foreclosure. If a borrower has several delinquent payments then they are at risk of default on a mortgage loan which also poses the risk of lost collateral. In a mortgage contract, a lender will detail the number of delinquent payments allowed before default action is taken. Generally, most contracts will allow up to 180 days of missed payments and delinquencies before taking notice of default action.