What to do when a buyer makes a default in payment?

Buying a home or an office is never an easy decision. In a real estate business, dealing with different clients requires different set of skills and especially there are many problems in the offing that you should be ready to face too. One such big risk that you have to face while making such real estate transactions is when a buyer makes a default in payments. It is not easy for any real estate business owner to carry on his or her business without getting all dues cleared. Hence we need to know what exactly to do when a buyer fails to make payments in time.  

Such purchases of home and other properties are usually financed by mortgages. In a typical transaction, the buyer of the land signs a promissory note to get enough finance for purchasing such land or property. The lender then executes a mortgage on the land and pays the seller of the land in full. The lender then gets a lien on such property and the buyer only get a deed to the property. In other words, as documented, the lender has a claim on such purchased land till his or her money has been paid back in full.

A buyer is said to be in default of the mortgager when they fail to pay such mortgage payments in time or when they fail to pay property tax/insurance and also when the owner fails to use such property in a way as specified by the mortgage agreement. If you do not pay your mortgage on time, it might not be a big issue in the initial stages. At such a stage you may even be granted a grace period of say fifteen days. As the grace period expires, you will owe the lender a late payment penalty in addition to mortgage amount payable. This may usually be charged at around four to six percent of the amount. : 

If you still fail to make the payment in these fifteen days and one full month passes by, you can expect your lender to mark a late payment on your mortgage. Each day as the mortgage default stays intact, your credit score will keep falling down and this might affect your reputation in a large way. In fact, this may hamper your chances of getting a good loan later on. Also the bad mark it creates continues to stay with you forever.  

When the buyer makes a default in payment, the lender has various options to exercise upon such default made on the side of the buyer. They can either:  

  • 1.Accelerate the indebtedness.
  • 2.Foreclose the mortgage; if the mortgage uses the ‘power of sale’ clause, then the mortgagee can actually foreclose the loan without even instituting a law suit.
  • 3.Sell off the mortgaged premises and use the sales proceeds to pay off the debts secured by such mortgagedeeds.

The best way to deal with such default payments as a buyer is to understand the gravity of the situation and act accordingly.  

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