What Happens If You Default On A Home Mortgage?

Written by: David Scott

Step 1: We Call the Bank 

And we tell what happened and why it is not possible to pay. Here are the circumstances that the bank will consider valid:

  • Laid off or fired for health reasons, the enterprise closed
  • Relatives are seriously ill and need a lot of money for treatment
  • There was an emergency with great material damage: fire, flooding, grand theft, theft, accident, and the like. If the trouble happens to the real estate purchased on a mortgage, the obligatory insurance compensates for everything.
  • A child was born in the family. On such a happy occasion, the bank can increase the mortgage term by adding up to 3 years. But only if the loan was received under the Young Family program. You can also count on an increase in the term if you become a guardian.

Voluntary resignation or dismissal for violations of labor discipline is not considered valid reasons.

Step 2. We Collect Documents 

You need to check with the manager what documents to provide to confirm the circumstances and bring them to the bank as soon as possible. If we consider the situations above, then these will be:  

  • Employment book with a record of the reason for dismissal. A certificate from the tax office or from the employer will show that income has fallen (if the difficulties have been for several months).
  • Medical certificates and card extract from doctors describing the necessary expensive medicines and procedures.
  • Checks if something has already been paid.
  • Certificates from the police, rescuers, or housing office, inspection reports, and expert opinions on the amount of damage.
  • Birth certificate or guardianship certificate. 

Step 3: Choose solutions

When the bank checks the information, the manager will offer several options. The most common is restructuring or, to put it more simply, a revision of the terms of credit.

What can the bank offer?

Reduce your monthly payment by extending your mortgage term. The bank can add up to 10 years. The total term, in this case, should not exceed 35 years.

Grant a grace period of up to two years. During this period, it will be possible not to pay the principal and part interest. The minimum payment is 1/10 of the amount of interest per month.

A loan holiday is a grace period during which the borrower can reduce or suspend mortgage payments for up to 6 months.

What are you paying for?

On a monthly basis, tenants see a list of mandatory and additional utility payments in the receipt. It includes the supply of hot and cold water, drainage, heating, garbage collection, cleaning of the local area, heat, gas, and electricity. You can choose additional services yourself: it can be a radio, intercom, or TV antenna. At the same time, prices for basic services are fixed by the management company and change only once a year, while for additional services, they can increase at any time. Separate points add contributions for current maintenance and upcoming repairs, as well as electricity used to operate the common property of an apartment building (bulbs in the entrances).

When you cannot pay

It happens that the management company does not provide services of adequate quality. For example, heating is not enough to maintain a comfortable temperature in the apartment (+18 degrees in the room, measured at a distance of a meter from the floor), water does not meet San Pin standards, and electricity and gas supply do not meet GOST standards. If you are faced with a long-term illegal disconnection of services or services of poor quality, you cannot pay for this period and demand a recalculation with a reduction in the amount. 

The permitted failure intervals are established by law:

  • No more than four hours for drainage;
  • No more than four hours without a break for cold and hot water supply;
  • No more than four hours per month for gas supply;
  • No more than 8–12 hours a day for heating, depending on the air temperature;
  • No more than two hours a day for electricity with two power sources and no more than a day with one.

For example, if rusty water flows from a tap for the fifth hour in a row, it is necessary to obtain a conclusion from the commission from the Management Company, as well as photograph or film the violation on video. If the management company refuses to check, you can contact the State Housing Inspectorate and conduct an independent examination.

Penalty charge and disconnection

Late payment penalties vary depending on how long you have not paid your receipts. In the period of 31–90 days of delay in payment, 1/300 of the Central Bank rate is charged for each day of delay; then, the penalties increase to 1/130 of the key rate. To date, the rate is 7.75% per annum. If you don’t pay your utility bills for three months, you’ll get a notification that your services will be cut off. After 30 days, it will be fulfilled. At first, services are partially disconnected for a period until the debt is paid off, but if you are not a speed to make a payment, you can lose the benefits of civilization for good. For example, they may not temporarily block but weld pipes through which water is supplied.

  • Not allowed on vacation.

Article 67 of the Federal Law “On Enforcement Proceedings” does contain such a measure as the restriction of departure. They cannot let you out at customs control only if they have a document confirming the debt – a court order. That is, the minimum rent debt will not spoil the vacation if the utility service does not go to court with it and demand compensation. By the way, the public utilities consider this measure to be very effective: most debtors pay the entire amount directly at the airport.

  • Eviction or property inventory

Suppose life without water, heat, and light does not scare you; you are not going to go anywhere and continue to ignore payments. In this case, after six months, there is a risk of eviction from the municipal apartment through the court. The defendant in court is a representative of the municipality or government agencies (the owner of the apartment). It is impossible to evict a debtor from a privatized apartment. But you can describe his property and give five days as the last chance to pay off the debt. If within five days the receipts remain unpaid, the property will be sold on account of the debt.

What happens if you do not pay the mortgage and hide from the bank?

Read the loan agreement

In any incomprehensible situation, first of all, look at the loan agreement. It says what awaits you for late-payments and what – for systematic non-payment.

Find the section of the contract that describes in what cases and how the bank can take the apartment for debts. This is necessary to prepare for negotiations.

Contact the bank

If you’re days of payment of the salary with which you paid contributions have simply changed, and it has become inconvenient for you to pay on certain dates, the bank will almost certainly meet you halfway and redo the payment schedule.

If you cannot pay in principle, in no case, do not hide your worsened situation from the bank! Otherwise, your debt will increase, and you will receive the status of an unscrupulous debtor.

Restructure Debt

One of the options that the bank can offer is the restructuring of your debt under the agreement. This is a general name for changing the terms of a loan; it can mean completely different techniques that will allow you to get through a difficult period and ease the credit burden.

For example, the bank may extend the term of the loan, due to which the monthly payment will decrease to what you can afford at the moment.

Another method of debt restructuring is to change the interest rate or payment currency (if the exchange rate has risen significantly, which led to financial difficulties).

The bank can cancel fines or other sanctions for late payment – as a rule; it is more important for it to return its money and not create additional problems for the borrower.

After agreeing on one or another option, you will sign an additional agreement with the bank to the contract and a new payment schedule.

Negotiate credit holidays

The bank may freeze the payment of the loan for some time. When you can pay your mortgage again, its term will simply increase by the duration of such “holidays.”

Also, the bank may allow for some time to repay only interest and return payments on the principal debt after the situation stabilizes.

Remember: it is easier and more profitable for the bank to negotiate with the debtor and offer a way out of the present situation than to bring the case to court.

Read the insurance contract

By signing a loan agreement with a bank, you have probably concluded an insurance agreement with an insurance company and paid it in good faith. It’s time to read this contract. Check which risks you have insured and what will be considered an insured event. Typically, the bank insists that you be insured for the risk of disability and the risk of death as a result of an accident.

Pay attention to the exact wording of which case is recognized as insured – they can include many nuances. For example, insurance can only work if you receive a disability of group 1 and only from a disease that was first diagnosed after the conclusion of the insurance contract. 

If your case fits the description, write a statement to the insurance company. Perhaps your debt will be repaid by her.

But it’s worth going to the bank even in this case – it’s not known how the deal with the insurance will end (and it will do everything possible not to take on the repayment of your mortgage).

Ask for government support

If you belong to the category of borrowers to whom the state can provide assistance in paying off a loan debt or otherwise restructure the debt, apply to the bank with an application.

Try to find additional sources of income

Consider if you can find a part-time job. Sounds trite, but it works! Perhaps you should think about your hobbies or skills that could bring you money. On the Internet, it is simple to find sites where people are looking for goods or services. People are willing to pay for a variety of tasks that do not always require certain skills, often just a little free time. For example, buy something in a store and bring it to the address or remind you of a meeting.

Rent an apartment

The most obvious way to get additional income is to put your assets to work. If you have the opportunity to rent out a mortgage apartment, live in another place, and pay the mortgage “at the expense” of the tenants – it’s time to do it on Yandex. In real estate, you can quickly place an ad on your own. Offers from owners are in great demand – this is a great opportunity to rent an apartment as quickly as possible and get the necessary amount to pay off the loan. Perhaps your living conditions will worsen for some time, but the debt for the apartment will decrease. As soon as the financial affair stabilizes, the apartment rental agreement can be terminated, and you can return to your home.

Cut costs

And again banal – but working! – Advice. There are many applications that show the structure of your expenses. You will most likely wonder where your money actually goes. Study this data and try to optimize the budget.

Read the stories of people who have switched to conscious consumption, and pay attention to which items of expenditure they exclude and which they reduce. Usually, the results of such experiments in the economy are impressive. Moreover, such an approach to planning your expenses is a global trend; some people live this way not at all because they are “poor.”

The main thing is not to panic and despair and to remember that forced savings are a temporary regime. The difficult period will pass, and the skill of competently planning a budget will remain with you forever.

Sell ​​something you don’t need

To do this, it is not at all necessary to first buy something unnecessary – most likely, it has long been bought and is waiting in the wings. Take a look around – you probably have things that you do not use but do not throw away either: old cameras, exercise machines that gather dust in the corner, double boilers, and yogurt makers in which you cook once a year. The sale of these things can, at least a little, alleviate the credit burden. And “unload” the apartment from the trash.

The most common way to get money to pay off a loan is to sell a car. Of course, if you have it. It is better to lose a car for a while than to risk an apartment bought on credit.

Refinance your loan

Another way to cope with financial difficulties is to apply to another bank to refinance your mortgage. In the “new” bank, the mortgage interest rate will be lower. And after repaying the debt to the first bank, you will repay the loan on more favorable terms (or your bank will offer them to you, having learned that you were going to leave it).

It is better to go for a new loan before you become a problem debtor of the bank, so it is advisable to take care of refinancing in advance.

  • Apply with Caution new Loan or Loan

If you are 100% sure that your difficulties are temporary, then a consumer loan can help you. Remember: it has a much higher interest rate than a mortgage, so soberly evaluate your prospects. After all, you have to pay two banks already.

Experts do not recommend this method of avoiding debts: very often, it all comes down to a set of new loans to pay off those already taken. Debt amounts can reach astronomical proportions.

In such situations, it is better to borrow money from friends and relatives.

  • Extreme measures for selling an apartment

This is an extreme case, but it will almost certainly help you pay off your debts.

Contact the bank and tell them about your plans to sell the apartment, which is in his pledge. The loan agreement must specify in what form and within what time period you must inform the bank about this.

It is obligatory to take into report the circumstances of buying an apartment: if maternity capital was used to purchase it, sort out the details of the sale in advance. If you signed a notarized obligation to give the children shares in the apartment after the mortgage is paid (banks often insist on just such a scheme in order not to take property with co-owners as collateral), then selling such housing can be problematic. In fact, you will dispose of someone else’s property. It is illegal. Upon reaching the age of majority, children will be able to challenge this decision. Therefore, such nuances must be discussed not only with the bank but also with an experienced lawyer.

All money received from the sale of housing and not used to pay the loan and interest will remain with you. If you managed to pay off a significant part of the mortgage, then you will have enough money on hand to buy yourself something cheaper or at least rent an apartment for the first time.

Remember, when selling an apartment, the interest paid can no longer be returned, and mortgage apartments can cost less than similar ones due to the encumbrance. In such cases, you should not count on the bank: it is important for him to return the unpaid amount and not to sell the apartment at a higher price, so it is better to look for buyers on your own.

Last option bankruptcy

If none of the above helped, then by law, the debtor can file for bankruptcy.

So that the court does not decide that this is how you want to avoid paying debts, it is better for the bank to file for bankruptcy. But credit organizations will not do this right away – first, they will try to get their money back in other ways.

In bankruptcy, all the property that you have will go to pay off debts and pay an external process manager. The remaining debts will be written off. Bankrupts over the next five years cannot count on new loans or loans, and within three years, they cannot participate in the management of a legal entity. In many countries, this is a new procedure that not many people have gone through, so it is better to find out all the nuances from a lawyer.

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