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Based on the cost of housing, the amount of the down payment is calculated and a payment schedule is planned. The interest rate depends on the amount of documentation collected, the borrower's credit history and the characteristics of the property itself.
Strict requirements for mortgage lending are due to large loan amounts. But at the same time, none of the parties to the agreement can 100% guarantee the fulfillment of all conditions throughout the entire loan term. About 30% of borrowers end up faced with the question of what will happen if they don’t pay their mortgage.
Consequences of non-payment of monthly mortgage payments
All conditions for late payments are specified in the contract. Banks draw up documentation carefully and describe in detail all penalties and the procedure for legal collection. Therefore, it is important to read every clause of the mortgage loan agreement before signing it.
Among the most common consequences of non-payment are:
— Fines and penalties accrued on the payment amount for each day of delay. All mortgage agreements provide for banks’ “insurance” in case of non-payment, so the amount of debt will grow daily. In 50% of cases, the fine exceeds the payment amount itself.
— Eviction from the lending facility. When a borrower does not contact bank employees, does not pay several payments in a row and does not want to settle the conflict peacefully, the bank has the right to evict him from the housing purchased on credit.
— Seizure of other property of the borrower. The mortgage agreement clearly states in which cases the bank has the right to go to court to forcefully collect the debt. When the proceedings move to the official legal level, the borrower has virtually no chance of proving his case. After filing a claim for non-payment, the case goes to the bailiffs, who seize the property and accounts of the unscrupulous loan payer. As a result, a person may lose not only new property, but also lose existing housing.
To avoid such serious consequences, you must carefully read the loan agreement. And also discuss in advance with bank employees situations when the question arises of what to do if it is not possible to pay on time.
Features of a mortgage agreement
A detailed mortgage loan agreement is not a whim of the bank, which wants the borrower to read a lot. The documents are drawn up by lawyers who consider all possible consequences of non-payment. They insure the bank so that the lender does not incur losses even in the absence of payments from the borrower.
It is in the contract that it is easy to find out what will happen if you do not pay regular mortgage payments. And there you will learn how to peacefully resolve a conflict situation before transferring documents to the courtroom.
60% of standard agreements contain the following clauses aimed at resolving situations when the borrower cannot pay:
- accrual of a one-time fine, the amount of which is fixed and specified in the contract;
- algorithm for resolving a conflict in a pre-trial instance - deadlines for a peaceful resolution and options for contacting the borrower to notify about late payments;
- accrual of penalties for each day of delay after the expiration of 3-5 days after failure to pay the required amount - penalties are calculated as a percentage of the payment amount or the entire balance of the debt;
- the possibility of transferring debt to third parties to collect the entire amount of debt - most often banks themselves do not search for debtors, but shift this responsibility to collection services;
- procedure for judicial debt collection.
In addition to all penalties, the borrower is required to insure the home and take out insurance for the loan agreement itself. It also serves as an additional guarantee that the bank will receive all funds.
Important! If the borrower does not respond to the bank’s requests and does not contact employees after the delay occurs, the lender will quickly take the case to court. It is always recommended to try to resolve the situation as soon as it arises, rather than hiding away in the hope that everything will resolve itself.
If collectors intervened
A credit institution does not have the right to transfer the bank to collection agencies if such a prospect is not specified in the agreement with the client. If this fact is confirmed, you can safely go to court to have the collection company’s demands declared illegal. Usually the bank takes this step in relation to hopeless clients who refuse to make contact.
Attention. If debt collectors have made claims on a debt, no payments need to be made to them without proof of transfer of title to the debt from the original creditor.
Then, in order not to lose all the property, if something happens, it is better to sell it or transfer it into ownership to another person. You can also state that the debt will be paid only by court decision.
Most of these firms avoid litigation. The debtor can contact anti-collection agencies , of which there are now a great many.
This, by the way, should prompt a deliberate choice of a worthwhile company. Representatives of these agencies are lawyers who will help you competently get out of this situation. Firstly, the lawyer will be able to undertake negotiations with debt collectors, will easily identify violations of the law in relation to his client and, if litigation cannot be avoided, will represent the interests of the debtor.
Debt reconstruction as a way to resolve the situation with overdue payments
One of the options for resolving a conflict when a borrower cannot pay a mortgage is for the bank to consider an application for debt restructuring. These are a kind of concessions on the part of the creditor. The bank offers individuals several options for resolving the debt situation:
— Installment payments. Banks often agree to “stretch” the payment period over a longer period. At the same time, they not only help the borrower keep the property, but also receive more profit. After all, the longer the loan term, the more interest the bank will receive.
— Cancellation of fines and preservation of the payment schedule. 80% of restructuring agreements contain a clause on the write-off of fines. The bank agrees to turn a blind eye to the fact that the borrower could not pay, but is now ready to make all regular payments on time. At the same time, at the time of execution of the agreement to “remake” the mortgage, the first amount is paid according to the new payment schedule.
— Registration of credit holidays. In some cases, the bank is ready to temporarily suspend the need to make payments. This is an extreme option, and the lender only takes it when the borrower is in a really difficult situation. For example, the breadwinner in the family died, the borrower himself died and his debt is inherited, as well as serious health problems and other situations when it is not possible to pay.
— Write-off of part of the mortgage debt. Typically, the payment amount is reduced by the amount of penalties and late interest accrued. Such a clause in the restructuring agreement appears only for bona fide borrowers. That is, the borrower missed payments for the first time. And the occurrence of delay is justified by life situations.
Important! Consideration of an application for debt restructuring occurs only when the borrower personally contacts the bank. If the owner of the mortgaged property hides from bank employees, does not get in touch and does not declare intentions to pay, then the lender will not make concessions to him.
Possible consequences
Failure to fulfill loan obligations does not entail criminal or administrative liability, but you should not count on the bank to stop charging fines and forgive the debt. In the event of delays, any creditor acts based on the terms of the loan agreement. This begs the question: “If you don’t pay your mortgage, what’s the first thing the bank will do?”
Bank actions
At the first violation of payment terms, the credit institution will try to contact the debtor by telephone. This is necessary to find out the reasons for the delay and notify the client about the presence of overdue debt. If the borrower does not answer calls, the bank can send its employee to him to clarify the circumstances.
In most cases, financial institutions try to resolve the problem pre-trial by influencing the borrower, guarantors and other persons specified in the loan agreement.
No serious action on the part of the creditor will follow if:
- the debt balance is no more than 5% of the total loan amount;
- the period of delay does not exceed 90 days;
- Payment violations are insignificant when taking into account the value of the collateral.
If arrears accumulate and there is no contact with the borrower, the bank uses one of the following methods:
- assigns the debt to a collection agency;
- files a claim in court.
Collectors use more severe collection methods, which should also be taken into account when deciding not to repay a mortgage loan.
Considering a lawsuit is a very troublesome matter, and in most cases the court obliges the client to pay only the principal amount of the loan. Fines, penalties and other penalties are not included here. Thus, the bank may lose part of its profit, so it strives not to bring the case to court. If the bank files a statement of claim, the next step is a trial, during which the fate of the collateral property is decided.
What's going on with the apartment?
If the borrower can prove that the delays are unintentional, the court may oblige the bank to take measures to resolve the situation. Otherwise, the collateral property is put up for sale.
As soon as permission to sell housing is received, the bank can no longer charge fees for using the loan and other fines and penalties. The final amount of the debt is fixed by a court decision. The sale of property takes place with the help of the bailiff service.
The starting price of an apartment for sale is set with a 10% discount. After a month, the discount increases to 15%. This will happen until the property is sold. The bank is interested in the quick sale of real estate, because a decrease in its value means a loss of funds that are used to pay off the debt.
After the sale of the apartment, the debt is repaid in the following order:
- Fines, penalties, penalties.
- Interest charges.
- Main debt.
If the amount from the sale is not enough to fully cover the debt obligations, the bank has the right to once again file a claim to collect the balance of the debt from other property of the borrower. If any amount remains after paying the debt, it is returned to the client.
If you don’t pay the mortgage, what will happen to the apartment if minor children are registered in it? In fact, this does not play a significant role. The Federal Bailiff Service can discharge a citizen without his consent if there are compelling reasons for this.
Deterioration of credit history
Delinquency on a mortgage can lead not only to the forced sale of the collateral. Client information is blacklisted. The credit history deteriorates, which means that further lending is impossible. There is no question of re-issuing a mortgage loan. But even a small loan cannot be obtained.
This should be taken into account when deciding whether to default on your mortgage. Over the course of your remaining long life, borrowed funds may be needed more than once.
Alternative ways to resolve a conflict with a mortgage bank
A borrower who cannot pay a mortgage often thinks about how to abandon it altogether and return his deposited funds. However, this situation is possible only after paying 2/3 of the total debt for the apartment.
The bank is ready to accept an application for a refund from the borrower when most of the amount for an apartment or other housing has been paid. In this case, the lender puts the property up for sale, takes the remainder of the debt, and returns the rest to the borrower.
Important! Each bank has its own special mortgage lending conditions. When you choose an organization to submit documents for a mortgage, carefully read all the terms of the agreement. Often, a low interest rate entails high penalties for late payments.
A legal way to avoid paying your mortgage
Not every borrower knows that there are several legal ways to avoid paying a mortgage. Let's take a closer look at them.
- Declaring the debtor bankrupt
Since 2015, a law has come into force, according to which every borrower with a debt of over 500 thousand rubles and lack of sufficient income to fulfill his obligations to the bank has the right to apply to the court to declare himself bankrupt. In this case, the loan must be overdue for more than three months.
This method of refusing to pay a mortgage is extreme, as it implies many negative consequences for the client. Among them:
- the impossibility of obtaining new loans even in urgent need;
- ban on employment in management positions;
- sale of bankrupt property at open auction within three years after assignment of such status (if any);
- obligation to pay for managerial services.
If the court establishes the fact that the borrower really has nothing to pay on the loan, then the likelihood of collecting the required amount from him will be extremely low. After a certain period of time, the bailiffs will send a decision to the bank about the impossibility of collection. In this case, the debt will be written off.
For more information about this, read the post “Bankruptcy of individuals under a mortgage.”
- Debt repayment through insurance
If a proven insured event has occurred with the borrower, he has the right to contact the insurance company with which the insurance contract was concluded at the time of registration of the mortgage with an application for insurance compensation. If the claims are satisfied, the insurer will pay the required amount to the bank for the borrower.
The insurance company pays the bank the full debt either in the event of the borrower’s death or in the event of a Group 1 or 2 disability.
- Deferment or credit holidays
In case of temporary difficulties, the borrower can contact the lender with a request to grant a deferred payment for a specified period, explaining the objective reasons and providing evidence (using supporting documents). This method allows you to legally avoid paying mortgage debt from a month to one year. However, after the agreed period, the client will be obliged to return to the previous schedule.
See the post “Mortgage Deferment”.
What happens if you don't pay your mortgage debt at all?
When the borrower does not make payments on the mortgage, the bank has the right to take the property for itself, as well as seize other property from the individual to repay the losses incurred. This situation is an extreme option for resolving the conflict.
It is not profitable for the bank to sue the borrower. This process takes a lot of time and also carries a certain financial burden. Initially, the lender pays all legal costs, and when he wins the case, he recovers compensation from the borrower.
Moreover, the work of bailiffs also does not guarantee the creditor the return of all funds spent on an individual. That is why pre-trial settlement is beneficial for both parties to the conflict.
After the case goes to trial
If the court’s intervention did take place, it must be clearly understood that there is no point in protecting one’s interests for a person who is not legally savvy. Therefore, here you need to use the services of a lawyer. The specialist competently argues the defendant’s position, which will give him a chance that the court’s decision will be in his favor. Of course, there is no point in waiting for the debtor to be released from liability to the bank.
But there is a real chance that lending conditions will be eased, in particular an extension of the debt repayment period, which means a reduction in monthly installments. The saddest outcome for the borrower is the sale of the mortgaged property for next to nothing, as well as the seizure of other property and the writing off of part of the salary in favor of the plaintiff.
