Home Loan Default

Home loans go into technical default when the lender or servicer has not received a payment by the end of the common 15 day grace period given for payments with most home loans. Most home loan monthly payments will be due on the 1st day of the month, with the grace period expiring on the 15th day of the month. Does this mean foreclosure is imminent? Of course not. Normal lender practice is to charge a late fee because the payment is past the grace period, but any late payment will not be reported to the credit bureaus until the payment has been late for 30 days. Home loan payments are usually due on the first day of the month, considered late after the 15th day of the month, and reported as late to the credit bureaus on the 30th day of the month.

When a loan becomes 30 days past due, the lender or servicer will usually initiate contact with the borrower to both determine if there appears to be a major problem, and to collect the past due payment. Although many people find collectors difficult and perhaps even unpleasant to deal with, communication with your lender is one of the important steps to take. If you had a temporary hardship that caused you to miss a payment, the lender can often assist with an informal loan workout to get that payment caught up. If your hardship is longer term, the lender may also be able to assist, but they need to be informed of your circumstances.

When the third home loan payment has been missed, most lenders will initiate foreclosure proceedings, which in some states means a default period begins, in other states a public auction will be scheduled fairly quickly. We have a chart of foreclosure procedures throughout the US if you'd like to learn more about your state procedures. Most foreclosure procedures will end in a public auction with the high bidder being the new owner of the property, some states do have redemption periods where the homeowner can re-purchase the property.

Home loan defaults can usually be cured more easily in the early stages of default, rather than later, both due to the smaller amounts past due and the ability of many borrowers to be able to successfully complete a workout plan with reasonable repayment terms. Late stage loan workouts will often require the borrower to make a fairly large "down payment" and substantially increased monthly payments to avoid imminent foreclosure auction.

Early action, and communication with the the lender are key steps in preventing home loan default from becoming a foreclosure.

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