Hard money lending is frequently an excellent solution for real estate investors who are in need of cash in a hurry and who possess a wide range of terms and payment schedules to choose from. Despite the fact that many lenders are aware of the individual circumstances of borrowers, they are also required to safeguard their investments. This necessitates taking appropriate action in the event that a borrower fails to repay an outstanding loan. Before you take out a loan using hard money, you need to be sure that you have a complete understanding of the terms and circumstances of the loan.
Reasons for the Default
Because of the short-term nature of a hard money loan, the lender may only need to receive a single missed payment in order to consider the loan to be past due. This is because the debt is considered to be in arrears.
Failure to Make the Balloon Payment
Almost all hard money loans come with a balloon payment that is scheduled to be made at the conclusion of the arrangement. This payment is significantly greater than the individual monthly payments that are due. In most cases, the borrower is able to make this payment since the investment property has been sold; nevertheless, if they are unable to do so for any reason, the lender may foreclose on the property.
Changing Conditions
Depending on the terms that the loan was initially established with, different financial conditions on the side of the borrower may be sufficient to convince the lender that they need to call the loan due immediately, rather than later. This is because the loan was initially established with certain terms. This procedure is not as arbitrary as it may appear, but if the loan is paid off legally and you are unable to make payments, it may be a reason for you to default on the loan.
Deterioration
If the condition of the investment property deteriorates to a level that is below a threshold that is considered acceptable, the lender may foreclose on the property or ask for an advance of funds.
Illegal Transfer
Within the terms of certain contracts, the borrower is required to maintain ownership of the property in his name. In addition to the potential for certain fines, the loan could be considered defaulted upon if the property is transferred without authorization.
What Happens if I Do Not Pay Back My Loan Obligation?
It is possible that the typical lender will opt to call the loan sooner than the typical traditional lender would do due to the shortened nature of hard money loans; nevertheless, there are still a few processes that must be taken before the transaction is completely closed off.
To begin, if the borrower fails to make payments or defaults on the loan, the lender may decide to significantly raise the interest rate on the loan; in rare instances, the rate may even be increased by a factor of two. The interest rates for hard money loans are significantly higher than those on average loans; they often start at 12% and continue to grow from there. If the borrower defaults on the loan, the interest rate can increase to 25-30% or even higher. Although a payment of $1500 can grow up to $3000 or even more, it is extremely difficult for the borrower to bring the account up to date if the payment is that high. In the event that it continues to be in default, the lender may decide to take more extreme enforcement actions.
When a borrower is unable to pay a bill that has been called due, this might result in the foreclosure of the property. If this occurs, the borrower will most likely make the decision to sell the collateral and keep all of the payments that are currently being made as a penalty for defaulting on the loan. In the event that the borrower is getting close to the conclusion of the loan’s term, this could result in the loss of several thousand dollars. It is not uncommon for hard money lenders to choose not to report a default to credit bureaus due to the high expense of doing so; nevertheless, they may choose to do so in certain circumstances.
A “deed in lieu of foreclosure” transaction is yet another alternative that the borrower can pursue. In the event that the lender agrees, the borrower has the option of returning the property to the lender rather than having a foreclosure act recorded on their credit history. It is possible that the borrower’s ability to obtain a conventional loan in the future may be negatively impacted by an excessive number of foreclosures; nevertheless, borrow money from another hard money lender may be an alternative. Should the borrower choose to pursue a deed in lieu of foreclosure, it is imperative that they obtain a release from the lender. Failure to do so may result in the borrower being responsible for both the debt and the property.
Hard Money Lenders in Phoenix, AZ
When you are searching for hard money loans near me in Phoenix, Scottsdale, Glendale, Tempe, Mesa, Chandler, or Gilbert, Arizona; Brad Loans is Arizona’s most trusted direct hard money lender! We specialize in hard money loans for Fix and Flip, refinancing mortgages with bad credit, business loans secured by real estate, real estate purchases, short sales, and other endeavors with quick turnaround in the Phoenix Valley.
BradLoans.com is the most trusted direct hard money lender and private money lender in Arizona! We are the best hard money lender in Arizona with the ability to fund commercial & residential hard money loans many times within a couple of days or less. Our lending rates and fees are reasonable compared to other Arizona hard money brokers or mortgage brokers in Arizona.
