If Mortgage Payments Not Paid

DISCLAIMER: We are not attorneys and we cannot advise you regarding your particular circumstances. You must always obtain competent legal counsel and financial advice.

1. Dealing with Delinquent Borrowers

What if you aren’t paid?

It is VERY important that your borrowers understand that you expect to be paid on time. There is an old saying, “When you lend people money you’re an angel. When you ask for it back you’re the devil.”

While you can sympathize with their problems. (Yes I really do understand how important it was that you have a new big screen TV).  BUT…This is a business. Just try paying YOUR home mortgage late and see how much sympathy you get. And banks probably have more money than you have.

It’s your money and you are entitled to get paid back ON TIME.

2. Mortgage Defaults

Of course people do have GENUINE emergencies and if someone has paid you on time every month for 3 years, you may want to cut them a little slack if they have a short term problem. But remember to add on those late charges. And don’t let it get too far behind. 2 months maximum. Try to get them to pay a reduced amount. But you are NOT a charity or their mother.

If they can’t or won’t catch up you will have to file for a mortgage foreclosure. (Some states use Deeds of Trust rather than mortgages and a different foreclosure method is used. Ask your attorney).

A mortgage foreclosure should take about 3-4 months from start to finish. (Depending on how fast your attorney works and the state the property is located in.)

An alternative is for them to give you a Deed in Lieu of Foreclosure. This means that they deed you the property and you satisfy (treat as paid) the mortgage. This is only effective if you own the first mortgage and there are no other mortgages behind yours. if there are you need to foreclose your mortgage or they will stick to the property title.

3. What Your Attorney Needs to Deal with Delinquent Borrowers

So you will know what to expect, the following is what  happens in Florida. (Other states will be similar, unless they are Deed of Trust States). Please note. This is intended for information only. We are not attorneys and different states can and will vary in what is required.

    1. Send the borrower a notice of default. Depending on the terms of your mortgage you may need to give the borrower a length of time to pay and you may need to use specific language. View a Sample Default Notice.
    2. If this does not get you paid, send the file to your attorney. They will need at least:
      • the original of the mortgage,
      • the note,
      • any assignment of rent addendum,
      • the total amount to pay-off the mortgage,
      • your default letter
      • It would be helpful if you could give them a copy of the last title search or title insurance you have.
      • Plus a check for their fees.

A Mortgage Foreclosure should cost about $1,000 plus court costs. (Obviously this varies. Some attorneys do them all the time and have the forms on their computers, other don’t. HINT. Go to the court house and look up some recent foreclosure files. See which firm(s) are doing foreclosures for your local banks.

Special legal notes that may apply to second mortgages.

Download a Microsoft ®Excel spreadsheet to calculate the profit or loss you can expect to make on the foreclosure (also available as an online calculator). Look for ‘Foreclosure Loss Analysis‘.