Your mortgage is a contract between you and the lender, and breaching its conditions has serious consequences. When you enter into a mortgage, you agree to make your payments on time until the loan is paid in full. If you fall behind, you end up on the radar of the lender’s collections department. After an extended delinquency the lender will declare that you’ve breached the contract, as a precursor to foreclosure.
The conditions of your mortgage are outlined in the promissory note. Late payment is the most common breach of mortgage conditions. Your payment is due at a set time each month, with a 15-day grace period before a late charge hits. Other examples of a breach of contract include non-payment of property taxes and failure to maintain adequate property insurance. Any of these breaches leads to notification from the lender.
The lender will notify you before, during and after a breach of mortgage conditions. You get a late charge notice once your payment is past the due-date grace period. At 30 days without payment, you receive a delinquency notice. At 45 days past due, the lender attempts phone contact and sends a demand or acceleration letter. This notice tells you the lender will pursue foreclosure unless you bring the loan current. With any other type of breach, such as delinquent taxes or inadequate insurance, the lender sends a notice as soon as it becomes aware of the violation.
In the demand or acceleration letter, the lender will tell you the length of the cure period. This is a period in which you must comply with the terms of the notice. It varies by lender and severity of the breach, but it typically runs from a week to 45 days. If you can’t meet the terms within that time, contact the lender immediately to work out an extension or some alternate method of cure. A willingness to work with the lender can delay and prevent foreclosure or other adverse action.
If you don’t comply with the lender’s instructions after being informed of a breach of contract, the lender will act under its rights in the mortgage document. In many cases, it will pursue foreclosure. You will be given notice informing you of the property’s auction date. If the lender doesn’t receive a satisfactory bid, it will take direct possession of the house, making it “real estate owned.” Either way, you'd be evicted from the property before the new owner took possession. Other forms of breach might be more easily rectified. For example, if you don’t have adequate insurance, the lender will force-place a policy for the proper amount, adding the expense to your loan.
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