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Delinquency

Financial Dictionary -> Debt -> Delinquency

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Similar to loan default, but specific to housing mortgages, delinquency refers to when a borrower fails to make mortgage payments on time and is therefore deemed unable to fulfill their contractual obligations. This only usually takes place when there has been no for warning to the lender or when an inadequate excuse is made.

Even if no further legal action is taken and the situation is sorted out, lenders still have the right and some feel industry obligation to report the delinquency to credit bureaus, so future lenders are aware that there could be problems and can set interest rates and terms accordingly when the borrower takes out another loan elsewhere.

If it is clear that the borrower cannot pull themselves out of delinquency then the lender can take them to court and go through the process of legal action. This involves declaring the mortgage as default and may result in foreclosure. This means the lender can force the sale of the house (like if it was collateral in a regular loan) so they can make some, or most of their due money back. Any surplus is given to the borrower to hopefully purchase a lesser valued property.

Like lots of debt issues the borrower can seek counseling, in this case delinquency counseling and receive guidance on the situation. Before foreclosure occurs the homeowner may seek foreclosure intervention, which like debt consolidation (it often falls under the same umbrella) a company may agree to take on the mortgage, pay off the delinquency, giving the borrower a new debt to them. This new loan usually has extended terms, resulting in a higher final repayment which is where they make the profit, although in the short term it allows the borrower to keep their house and begin to get repayments back on track.

If however they again get themselves in to delinquency the new company can also force the sale of the house for collateral and it is much more unlikely for another company to take on the loan leaving the borrower in a very tough situation.

If caught in delinquency you should seek a lawyer and nonprofit counseling for guidance on the best options to take.