If you fail to comply with the terms of the promissory note or mortgage (or deed of trust) you signed when taking out your home loan, you're considered in "default." The most common default type of mortgage loan default is falling behind in the required monthly payments. However, breaching other terms in the loan contract is also a default.
Again, a mortgage default happens when a borrower fails to meet the terms of their loan agreement with the lender, typically by missing mortgage payments. When you take out a mortgage to buy a home, you agree in the promissory note to make regular monthly payments that cover the loan's principal and interest, along with property taxes and insurance, if applicable. But if you don't make these payments, you're in default, which might eventually lead to a foreclosure.
Default can also be triggered if you don't comply with the other conditions in the promissory note or mortgage agreement, such as failing to have proper insurance on the property. You'll likely be in default on your mortgage loan if:
You can avoid default by making your mortgage payments on time and complying with the other terms of your mortgage loan.
A "mortgage default" is when you violate the loan's terms. A "foreclosure" is the legal process in which a home loan lender sells a property at auction to pay off the remaining mortgage balance.
Being in default on your mortgage payments will hurt your credit, making it more difficult to get future loans or refinancing options. Each missed payment hurts your credit scores.
Mortgage default can also lead to the eventual loss of the home through the foreclosure process if you don't work out an alternative. Having a foreclosure on your credit reports will also damage your credit scores.
Various life changes can cause a person to default on their mortgage payments. For example, if you lose your job, a family member dies, you have ongoing medical expenses, or unexpected financial obligations come up, you might go into default because you can't make the payments.
Technically, missing just one mortgage payment is a default. However, a mortgage lender won't start a foreclosure immediately. In most cases, the lender must wait until you're over 120 days delinquent on your payments before initiating a foreclosure.
Once you default on your mortgage loan, the lender can demand that you repay the entire outstanding balance, which is called "accelerating the debt." The lender can foreclose if you don't repay the total loan amount or cure the default.
State law or the terms of your mortgage or deed of trust might give you the right to cure (fix) the default.
Again, federal law generally requires the loan servicer to hold off until you're more than 120 days delinquent on the loan before starting a foreclosure. The 120-day required delay on initiating a foreclosure also usually applies in the case of a non-monetary breach of the loan contract, such as:
This 120-day preforeclosure period is designed to give you time to explore loss mitigation options, but it's also a good time to cure the default if you can.
You can cure a payment default by paying the amount due, plus any allowable costs and fees, by a specific time before a foreclosure sale. The cure amount includes just overdue payments, fees, costs, and interest—not future or accelerated payments. After you cure the default, the foreclosure stops.
The amount of time you'll get to cure a default varies depending on state law and the terms of your loan contract. Also, some states limit how many times you can fix a default.
Sometimes, the mortgage or deed of trust you signed when taking out the loan will require the lender to send you a notice before the loan is accelerated, giving you a chance to cure the default. This notice is called a "breach letter."
Also, many states have laws requiring the servicer to notify you about an impending foreclosure after a default. For example, in a nonjudicial foreclosure, you might receive a notice about the right to cure or a notice of intent to foreclose. In a judicial foreclosure, you'll get a copy of the lender's complaint (lawsuit) and perhaps other notices as well.
As soon as you know you'll have trouble making your mortgage payments, contact your mortgage servicer to find out what options are available.
If you want to keep your home, you might be able to reinstate the loan or qualify for a loan modification, forbearance, or repayment agreement. Or, if you'd give up the property without going through a foreclosure, you might be able to complete a short sale or deed in lieu of foreclosure.
If the government owns or backs your loan, you might qualify for a special workout option.
To get information about foreclosure laws in your state and find links to more detailed articles covering state foreclosure procedures, see our Key Aspects of State Foreclosure Law: 50-State Chart.
Consider talking to a foreclosure attorney if you're facing a possible foreclosure because you've defaulted on your home loan. Also, it's a good idea to contact a HUD-approved housing counselor to discuss ways to avoid a foreclosure, like getting a mortgage modification.