⚠️ What Is a Loan Default in Real Estate?

A Loan Default occurs when a borrower fails to meet the terms of their mortgage—most commonly by missing payments. When a loan defaults, the lender may charge fees, report the delinquency, invoke an acceleration clause, or begin foreclosure.

How Loan Default Works

A mortgage enters default when the borrower fails to follow the loan agreement. The most common cause is missed payments, but default can also occur for issues like unpaid property taxes or lapsed insurance.

Typical stages leading to default:

  • Late payment – usually after 15 days past due.
  • Delinquency – typically 30–90 days past due.
  • Default – borrower violates loan terms or fails to cure delinquency.
  • Acceleration – lender demands full loan repayment.
  • Foreclosure – lender initiates the legal process to reclaim the property.

Each lender and state may define default differently, but most mortgages allow action after 90 days of missed payments.

Why Loan Default Matters

For Homeowners / Borrowers:

  • Can result in late fees and legal action.
  • Triggers credit score damage.
  • May lead to foreclosure if unresolved.
  • Makes refinancing or new loans difficult.

For Lenders:

  • Signals financial risk and potential loss.
  • Allows activation of the acceleration clause.
  • Can pursue foreclosure or loss mitigation efforts.
  • Regulated reporting and compliance obligations apply.

Example of a Loan Default

Here’s how a loan default may occur in a real transaction:

  • The borrower misses mortgage payments for 90+ days.
  • The lender sends a Notice of Default (NOD).
  • The mortgage is accelerated, requiring full payoff.
  • If unpaid, foreclosure begins.

This process varies by state, but the sequence—missed payments → default → acceleration → foreclosure—is common nationwide.

Why Loan Default Matters for FSBO Sellers

  • Homeowners in default may need to sell quickly to avoid foreclosure.
  • Sellers must ensure the mortgage payoff covers the loan balance.
  • Short sales or delayed closings may require lender approval.
  • Listing with Flat Fee MLS helps attract more buyers quickly.

FSBO sellers should understand default timelines to avoid last-minute complications during a sale.

Frequently Asked Questions

How many missed payments lead to default?
Most lenders classify default after 90 days of missed payments, but it varies by agreement.

Can a loan default be reversed?
Yes. Borrowers can often cure the default by paying past-due amounts or correcting violations.

Does default always lead to foreclosure?
No. Many lenders offer repayment plans, loan modifications, or reinstatement options.

Does default ruin your credit?
Default significantly impacts credit scores and remains on record for up to seven years.

Can I sell my home while in default?
Yes—many homeowners sell quickly to avoid foreclosure, often using a Flat Fee MLS listing for exposure.