What is a mortgage default or default?
A mortgage default is when a borrower has not made a scheduled debt payment (either principal and interest or interest only) according to the debt contract. Or a default can also result from failure to cure a loan covenant (condition) of the debt contract. A default is the failure to pay back a loan, which may arise from the debtor’s inability or unwillingness to pay their debt. A default can occur with bonds, mortgage loans, or promissory notes.
There are two types of default: a debt service default and a technical default. A debt service default results from a borrower not making an on time payment for principal, interest, or just one of these. A technical default results from a loan covenant being violated.
A default should be distinguished from the terms insolvency and bankruptcy by:
- Default means the debtor has not paid a debt, which they were required to have paid by contract.
- Insolvency means that the debtor is unable to meet their current debt obligations usually due to cash flow problems.
- Bankruptcy means that the court supervises the financial affairs of those who are insolvent or in default.
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