A mortgage contract is a legal document between a mortgagor (borrower) and mortgagee (lender). If either party fails to hold up their end of the contract, there are consequences. These consequences can be as minimal as extra fees and interest, or as significant as foreclosure. Breaching a mortgage contract can be detrimental to a borrower's credit. There are solutions if a customer has broken a contract.
Many mortgage defaults result when the terms of an adjustable or variable mortgage change. In these cases, mortgage payments usually increase. If a borrower is unable to make the larger payment, default often occurs. In these cases, handling the problem early is critical. Most lenders have proprietary hardship programs that are offered on a case-by-case basis. Borrowers must submit a letter of explanation, income documents and any other documents (e.g. medical records and disability checks) that support the hardship claim. These solutions are often short-term (six months or less), allowing the borrower a limited window to get back on his feet.
If a mortgage contract is breached, a consumer can attempt to refinance before the consequences take hold. For example, if a borrower fails to make payments on time and faces foreclosure, she may research new mortgage companies and "hard money" lenders (private investors who often charge high fees and interest) who might be willing to refinance the mortgage and any late fees. These are often called "rescue" loans and the terms tend to be quite unfavourable. Any borrower considering these loans should take extra caution. While a rescue loan might stave off foreclosure in the short-term, it could spell future problems down the road.
If a mortgage breach occurs due to unlawful activity on the part of the lender, a borrower has the right to take legal action. Foreclosure is often the result of a mortgage breach, so legal action must be swift if there is any lender malfeasance. Consumers must retain a real estate attorney, present all documents supporting their claims and file a motion to stay the foreclosure with a court in the correct town. Documents that will help when taking legal action against a mortgage company include: the original mortgage note, mortgage statements, correspondence from the lender and a credit report.