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The WORD for Today is:
Default—When a person does not have the ability to make their mortgage payment as scheduled. A default begins on the date when the mortgage payment should have been made. This date should not be confused with the grace period. Once the consumer has gone into default, the lender has the option of accelerating payments, demanding payment in full and/or other action leading to foreclosure. If the lender fails to declare the existence of default, in keeping with the terms of the note and mortgage, they may be deprived of the right to accelerate repayment of the debt.
Default means failing to meet the requirements of an agreement or failing to perform a legal duty. Most often the term is used to indicate that someone has failed to make the required payments on their mortgage. It is important to note that you may also be “in default” due to failure to maintain insurance as required, or failure to keep the collateral in good condition.
“Default”—[as used in the PROMISSORY NOTE] means that a regularly scheduled payment has not been made, in full, on the date it was due to be paid. Many folks miss both the simplicity and the essence of this very short paragraph. Notwithstanding the allowance for a grace period, you are legally in default on a mortgage when the scheduled payment is not in the lender’s possession, in full, on the 1st of the month. While allowances are made for late payments and a grace period exists, there would be no need for “grace’ if you were not already in default.
Default Action Plan—Should include the following, as a minimum. As a consumer you should:
1. Identify the cause of the default. Is the cause temporary or permanent? Can you provide documentation that the reason for the missed payments was either a reduction in your income or an increase in your expenses. In either case, most often you will be required to demonstrate a circumstance which was beyond your control. Voluntarily leaving a job or reducing your hours are considered under your control. Moving from your home to another city, even for a better job opportunity is considered under your control.
2. Design a plan for catching up missed payments. The plan should be feasible based on your current income or realistic expectations of future income (a definite job commitment or date of return from layoff or disability) and include consideration for other expenses which must be carried on at the same time you are resuming payments. Seldom is a 1½ payment realistic and such an arrangement is strictly prohibited on FHA backed loans under Mortgagee Letter 00-05 (See HUD's Website — You will need to click on the letter "00-5" in order to download it).
3. Get in touch with the lender’s loss mitigation shop (also called the work-out department). Your best hope for a good resolution is to speak to the head of this department. Customer service does not typically offer loss mitigation options or work outs that extend past a couple of months of default.
4. Explain the problem. You must be prepared to explain your situation in detail and you should expect to be asked to provide documentation of both the cause of the inability to make payments as well as the detailed information about your current finances as a way to gauge what options might be considered.
5. You should plan to be part of the solution by not only asking for help, but by understanding the different options which are possible, when each might work and under what circumstances. You should see February 24th's entry, where Hardship, Hardship Letters, and Hardship Packages were discussed (here).
6. You should always return phone calls.
You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.
(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)
Default—When a person does not have the ability to make their mortgage payment as scheduled. A default begins on the date when the mortgage payment should have been made. This date should not be confused with the grace period. Once the consumer has gone into default, the lender has the option of accelerating payments, demanding payment in full and/or other action leading to foreclosure. If the lender fails to declare the existence of default, in keeping with the terms of the note and mortgage, they may be deprived of the right to accelerate repayment of the debt.
Default means failing to meet the requirements of an agreement or failing to perform a legal duty. Most often the term is used to indicate that someone has failed to make the required payments on their mortgage. It is important to note that you may also be “in default” due to failure to maintain insurance as required, or failure to keep the collateral in good condition.
“Default”—[as used in the PROMISSORY NOTE] means that a regularly scheduled payment has not been made, in full, on the date it was due to be paid. Many folks miss both the simplicity and the essence of this very short paragraph. Notwithstanding the allowance for a grace period, you are legally in default on a mortgage when the scheduled payment is not in the lender’s possession, in full, on the 1st of the month. While allowances are made for late payments and a grace period exists, there would be no need for “grace’ if you were not already in default.
Default Action Plan—Should include the following, as a minimum. As a consumer you should:
1. Identify the cause of the default. Is the cause temporary or permanent? Can you provide documentation that the reason for the missed payments was either a reduction in your income or an increase in your expenses. In either case, most often you will be required to demonstrate a circumstance which was beyond your control. Voluntarily leaving a job or reducing your hours are considered under your control. Moving from your home to another city, even for a better job opportunity is considered under your control.
2. Design a plan for catching up missed payments. The plan should be feasible based on your current income or realistic expectations of future income (a definite job commitment or date of return from layoff or disability) and include consideration for other expenses which must be carried on at the same time you are resuming payments. Seldom is a 1½ payment realistic and such an arrangement is strictly prohibited on FHA backed loans under Mortgagee Letter 00-05 (See HUD's Website — You will need to click on the letter "00-5" in order to download it).
3. Get in touch with the lender’s loss mitigation shop (also called the work-out department). Your best hope for a good resolution is to speak to the head of this department. Customer service does not typically offer loss mitigation options or work outs that extend past a couple of months of default.
4. Explain the problem. You must be prepared to explain your situation in detail and you should expect to be asked to provide documentation of both the cause of the inability to make payments as well as the detailed information about your current finances as a way to gauge what options might be considered.
5. You should plan to be part of the solution by not only asking for help, but by understanding the different options which are possible, when each might work and under what circumstances. You should see February 24th's entry, where Hardship, Hardship Letters, and Hardship Packages were discussed (here).
6. You should always return phone calls.
Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.
You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.
(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)
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