As A Landlord, What Happens When You Default On Your Mortgage?
The housing market has been in turmoil thanks in part to the covid-19 pandemic. In 2020, lenders started panicking and were worried lenders were going to default on their loan agreements. As a landlord, your commitment to paying your mortgage on time will be under threat from various factors, including an inability to rent your property, non-paying tenants, or spiraling costs due to the fluctuations in the market.
While no one commits to a mortgage thinking they will default, as a landlord, you should be aware of your options should this be the case and know exactly what will happen to both you and your tenants if this happens.
Defaulting on a Mortgage
If you default on your mortgage loan, the lender has the right to demand that you repay the entire outstanding balance, a process known as “accelerating the debt.” If you do not repay the entire loan amount or cure the default, the lender can foreclose. You may have the right to cure (fix) the default under state law or the terms of your mortgage or deed of trust.
In some cases, federal law requires the servicer to wait until you are more than 120 days delinquent on a loan before initiating a foreclosure. The required 120-day delay in initiating a foreclosure also applies in the case of a non-monetary breach of the loan contract, such as failing to pay property taxes and failing to live in the home if the mortgage requires it.
If you are experiencing severe financial issues, you must consult an attorney to assist you in deciding your next option regarding the money you owe and any default action you arel likely to incur. Whether you need a lawyer such as Anchor Law Firm to assist you in bankruptcy proceedings, or you need to explore loss mitigation options to minimize the impact of defaulting o your loan agreements.
What Happens To A Tenant If You Default?
When a landlord is in foreclosure, a tenant cannot be evicted or forced to leave a unit in most jurisdictions in the United States. And, regardless of his financial situation, landlords are not permitted to turn off utilities, change locks, or board up a building.
In general, foreclosures occur when a lender repossesses property from an owner who has failed to make mortgage payments. A lender will file a complaint and summons in court and serves it on a borrower who has not made timely payments to the lender.
When a landlord is in foreclosure, a tenant’s rights and duties under the lease agreement do not change; rent still has to be paid. The landowner, or an appointed Receiver, should then continue to manage and maintain the property instead of the landlord. The court will appoint a receiver in cases where the landlord is unable to perform their duties. Typically this will be temporary.
A Receiver is responsible for giving notice of their management, obtaining the names and addresses of all tenants, providing written notice of the foreclosure and its case number, and providing tenants with contact information for the Receivers.