What’s the Difference Between Mortgage Delinquency and Mortgage Default?

With foreclosures taking up so much space in the headlines these days, we’ve been conditioned to think of it as the first and final step in a mortgage loan gone bad scenario.  However, there are two steps that come before the foreclosure process begins - namely: mortgage delinquency and mortgage default.

A Quick Mortgage Terms Primer

Delinquency

A mortgage borrower becomes delinquent on payment of their loan when they fail to pay their mortgage payment on the due date.  Even if we’re talking one day late, your mortgage becomes delinquent as soon as your actual payable due date is passed.  Now, your lender likely allows you a set period, which can be between as many as 15 to 30 days out, before they assess any sort of late payment fee.    But… Go up to or beyond the 30 day late mark, and your lender will send a friendly little note to at least one of the 3 major credit bureaus - letting them know you’ve been very, very naughty.

Should this happen to you, don’t worry too much.  As long as you get back on track and make nice nice with your lender, you should be in good shape.  Sure, you’ll have that 30 day late ding on your credit report, but steady payments over time from this point forward will get you back in good standing.

Should, for some reason, you fall behind in your mortgage payment beyond the 30 day period, and then on into an extended period, your mortgage will then move into default territory.

Default

Normally, when you fail to make as many as three or more of your home loan payments, your mortgage will normally move into default status.

Folks, this isn’t pretty.  Once your home loan moves into default, the Legal Team of Dewey, Cheat’em, and Howe get the nod.

They’ll likely begin foreclosure proceedings, and you’ll be required to get caught up completely on your mortgage loan if you want to avoid moving into the full foreclosure process.  Oh, and there’s also a chance that you’ll be charged fees to pay back your lender for whatever they paid their legal firm.  Yeah, I know.  You can almost hear that cash register bell ringing.

Bottom line is this…

You’re not alone if you go past the 15-day to the 30-day late payment limit.  However, be very, very diligent about getting square with your lender if this happens.  This is not a situation where you want to stuff the notice of payment due in the drawer and get back to watching that night’s UFC battle.

August 2, 2009