In real estate, the term “default,” is never a good thing. If you are curious as to the meaning of this term, it will be explained, in depth. Many wonder whether or not you can sell your home If you are in default, an understandable question and concern for any homeowner, particularly those who were able to keep their homes after the 2007 Financial Crisis, whose repercussions stretched for years after. If you’re a new homeowner, or a homeowner facing financial difficulties, default is a term with which you should be familiar.
What Default Means
When it comes to real estate, defaulting is when a property owner fails to honor the terms and conditions of the contract between you and your mortgage lender, whether this lender is a bank, or another institution that formally lends money. When you fail to meet the agreed terms, this could not only land you in trouble with your financial institution, but also put you in danger of jail time and expensive penalties.
If you have failed to pay your equated monthly installment, or EQI, for at least three months, your home will, most likely, go into foreclosure. If this happens, your bank will charge a penalty for defaulting on payment. Later, assuming that payments still have not been received, your lender will also start a legal action against you, as they have reason to believe that you are willfully and intentionally avoiding making payments on your home. Just to be clear, landlords of rental properties, whether long-term or short-term, will have similar rights with tenants who are delinquent in their rent payments. Just as a foreclosure resulting from a default may result in you losing your home, a landlord can evict you, and your credit will be affected by either scenario.
So what happens when you default on your home’s payments? Once you have failed to pay the required amount, the lender will ask you to pay the outstanding balance immediately. This is known as “accelerating the debt”. Most lenders will be give you a notice before the loan is even accelerated. This will give you time to repay the debt, and keep your credit score intact.
What can you do if you are at default?
Sometimes we cannot avoid certain situations that could lead us to failure of payment, even for something as essential as a home. However, you aren’t out of options – if your home is in foreclosure and you are looking for ways to fix this issue, here are some important tips that can help you to avoid it.
For starters, ask your bank if you qualify for loan refinancing. This puts the ball back in the lender’s court, giving them the option to spare themselves from the headache of caring for a foreclosed property. If they increase your tenure, or the life of your loan, then there’s a possibility that your EMI (equated monthly installments) may decrease. This still means, however, that you will pay more than you actually intended to, but given that a foreclosure is a tedious process for both the lender, and the payer, most financial institutions are willing to consider options that keep you in your home.
If this isn’t an option for you, try asking your lender for a grace period, – a period of time, decided by your lender, that allows you to find the money owed for your property. Don’t be afraid to explain your story to your lender. Your situation could be could be due to circumstances beyond your control, like financial loss, losing a job or health issues. If your reasons are valid, there’s a chance that your bank will give you time to resume your payments, but expect some penalties along with it. Be clear with your lender about their terms of your grace period to avoid further trouble.
An underutilized option is counseling centers that can help you navigate your current financial situation. These centers can help you by giving you options based on the problem at hand so that you don’t fall more deeply into debt in the future.
Liquidating your assets should be your last resort, to be used when other options fail. You can break down your assets and see which can help pay the EMIs so your loan will be reduced accordingly.
The Most Important Question
Should you default, the question as to whether or not you can sell you home remains, and the answer is yes. You can still sell your house at most any time, but your mortgage and financial situation will be strong elements in the strategy that you will need to sell your home. In the case of foreclosure due to defaulted payments, your house may be put up for auction. If you can sell your home, your first responsibility is to repay your lender the money that they are due, including fees, taxes, and penalties resulting from your default. Check within the state you are living in if you are allowed a statutory right of redemption. This means you have a limited time to redeem your property after foreclosure, usually one year.
What can you do to avoid foreclosure?
If you default on your mortgage, foreclosure cannot be avoided. This means that the lender or bank can repossess your house and when this happens, you must move out. However, you can avoid this situation by simply being more mindful of your home’s financial needs.
- Don’t ever ignore any problems regarding your monthly dues. The further behind you are, the harder it will be to get out of the subsequent default. For this reason, it is extremely important to make mortgage payments as soon as possible.
- Make sure to contact your lender if you encounter a problem. This may prevent an already-big problem from getting bigger.
- Respond to your lender the moment they send notice. This can help you avoid paying penalties. Not reading your notice will not be an acceptable excuse in foreclosure court.
- Make sure you know your mortgage rights. Gather all your loan documents and file them in a secure place. Read them and know what you can do in case you can’t make your payments. Don’t neglect to familiarize yourself on foreclosure laws in your state.
- Read tips about how you can prevent foreclosure. Search the internet, contact real estate professionals, and see what you can find.
- Be sure to take care of the bills before you get that new pair of shoes. Sit down, and take a hard look at your finances to see where you should cut spending.
- Know your assets – this could be jewelry, cars, life insurance policies and other very valuable items. If your mortgage isn’t the only payment with which you’re struggling, consider moonlighting in another position.
- Contact a House and Urban Development counselor, or any government agency geared towards assisting homeowners with their loans. Many sites offer free counseling and can help you understand your rights, the laws regarding mortgages, and even help you organize your finances.
Don’t let your home go this way. Contact a real estate professional if you have questions about your options to save your home.
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