What happens if I don’t pay a mortgage
Perhaps this is one of the questions of greatest fear, in all those people who have a bank loan. As is known, financial institutions lend an amount of money, with a promise of payment made by the applicant to return the principal plus interest.
As a protection measure, the banks keep the property of the home, in such a way as to be able to guarantee the return of the borrowed money with that asset. Does this mean that if a person defaults on a mortgage , they will necessarily lose their home?
Everything will depend not only on the financial situation of the debtor, but on the conditions under which the mortgage has been signed .
CONSEQUENCES OF A MORTGAGE DEFAULT
This situation occurs when the debtor cannot meet his commitments because for some supervening reason, his economic situation has changed.
At that time, the banks resort to a seizure and auction practice, with which they seek to recover all of the money loaned to the applicant. This process leads to several stages which are:
Negotiation
After the expiration of the second consecutive installment, the collection department of the financial institution contacts the mortgage debtor, to try to find out the reasons why the financial commitment has not been met.
At this point, a negotiation process can be started between the bank and the client, where they are given some possibilities to pay the installments, as well as the default interest.
Debt reconsideration
If the person has failed to cancel four consecutive monthly installments, the representatives of the financial institution reconsider a modification in the conditions of the mortgage. These can range from a decrease in monthly payments to extending the repayment term of the loan.
In this case, they give a short period of time for the debtor to come up with the installments, plus all the interest generated up to the moment of rethinking the debt.
Initiation of legal actions
If it happens that for six months the person has not been able to pay the monthly payments, the credit and collections department of the entity proceeds to refer the case to the legal department , so that it can take legal actions and can seize the property.
That is why the debtor becomes enrolled in the list of defaulters and that what generates, is that it is impossible for him to access any other type of credits.
Trial development
During the trial, the arguments given by the legal representatives of the financial institution, as well as by the debtor, will be heard. In the vast majority of cases, the bank’s final argument is the presentation of the mortgage contract signed by the defendant, accepting the conditions . Given this fact, the court fails or issues a favorable judgment for the entity.
The judge then sets a date for the home auction process to take place. In this procedure the representatives of the bank, members of the court and all persons interested in acquiring the property will be present.
AUCTION PROCESS
To reach this point in the auction, approximately between 18 and 24 months are estimated, from the moment the first collection notification is sent to the debtor. After having initiated the legal actions the competent judge of the case, proceeds to authorize the auction of the house .
At the moment in which he makes the decision, he lets the debtor know that he has a deadline, so that he can pay the entire mortgage, as well as the default interest and all the expenses generated during the legal process.
In the event that the person cannot comply with this, the imminent auction of the property is carried out. As is known, this is an action in which the house is sold to whoever offers the most money.
This does not represent the end of the problem for the debtor, since if the amount of money obtained in said auction is equal to or greater than the entire mortgage, the bank considers the debt paid, but if the resources are insufficient, then The person must respond for the difference with other assets, until the entire loan is paid off.
Another important fact is that if when the person applied for the mortgage and the bank considered that their financial profile was not the best, requesting the presence of a guarantor , then it will proceed to collect the difference of said mortgage from this person.
In the event that it cannot or does not want to cancel, the bank will initiate a new seizure and auction procedure of its assets until the total recovery of the money is achieved.
Many people at this point decide to file for bankruptcy or even appeal for suspension of payment. This is definitely a mistake, as you will not be able to get rid of the debt.
ACTIONS TO TAKE WHEN YOU STOP PAYING A MORTGAGE
Everyone knows when their financial situation is in frank deterioration, which is why it is recommended to take some actions , in such a way as to avoid that the financial institution reaches the point of suing, seizing and auctioning the home.
Negotiate with the bank
At the moment when the person begins to have problems with their income and their ability to pay is reduced, it is advisable to anticipate the call from the bank and go directly to it, to expose their situation.
This will be taken by the financial institution, as a gesture of responsibility apart from the debtor and the important thing is that the desire that exists is expressed, to fulfill the commitments acquired.
For the banks it is not a business to go to a legal process, because they would certainly charge but much more slowly. In any case, you would rather have a client to whom you can refinance the debt than a delinquent client.
In the same way, if the bad economic run through which you are going is estimated to be temporary, you can request a refinancing of the debt, even request a grace period during which you will only pay the mortgage interest.
In this case, the debtor must be well responsible because this type of commitment generates very high posterior installments and if there is not enough income, the debt will be unpayable.
Sell the property
This is perhaps the most desperate measure of all, and consists of trying to sell the property before the bank proceeds to foreclose. It is estimated that between the beginning of the legal actions and the first notification of delay, there will be approximately six months.
That is why at this time a buyer for the home could be located, but you must be very careful with the movement of the market since what you want is to sell the asset, cancel the mortgage and not damage the credit history. But if the value of the house is below the total of the credit, this measure will be impractical.
Some people have made the mistake of applying for personal loans and even cash advances with their credit cards, to pay off their outstanding mortgage payments.
The problem arises in this case, is that not only will they have to pay the new installments to repay the mortgage loan , but they will also have to add the new debt acquired. This would be like uncovering one hole to cover another .
Appeal to the mortgage contract
There is an option called ” dation in payment ” is basically the delivery of the home, in exchange for paying off the mortgage loan. If within the conditions negotiated with the bank, this alternative is found and the debtor considers that there is no possibility of canceling the pending installments, he can appeal to it.
If the value of the home is less than the entire mortgage, the bank will not be able to seize more assets from the debtor. You will not even be able to collect from a guarantor the remaining money for the cancellation of the mortgage
FORECAST TO AVOID FALLING INTO DEFAULT
At the time when a mortgage is going to be applied for, the person must be honest about their finances and even have an alternative plan, in case they go through a difficult economic situation.
That is why when you are going to choose the bank to apply for a mortgage, it is always recommended that you lean towards the one that offers the greatest advantages.
For example, it is essential to establish what interest rate has to be paid, if it is fixed or variable and this is a personal decision, which will depend on the economic projections that the person has in the medium and long term.
In the same way, it must be remembered that the installments are paid monthly and consecutively and many people take this as a payment, but being honest it is about the return of the money they have loaned you.
The fee can be projected for the next few years, so it is always recommended that its cancellation does not compromise more than 30% of the total monthly income.
You should never bet on the prescription of the debt since sometimes confusion is generated, since many people believe that it expires after 5 years, this being incorrect since according to Spanish legislation , the expiration of a mortgage debt It is at 20 years, counting from the maturity date, when the loan was delivered.
In order for the prescription to be valid, two conditions must be presented, the first that 20 years have elapsed without the creditor having claimed the debtor and the other, due to the death of the debtor without leaving any assets with which to deal with debt.