Failing to make timely payments on a long-term loan -- including a mortgage, student loan or deed of trust -- can cause your bank to write the debt off. Your bank may demand payment in full for the debt before writing the loan off as a bad debt. This is well within your lender's rights though is often not exactly what your lender is looking for in terms of a settling your delinquency.
Demanding Payment in Full
Your bank may demand payment in full for a long-term loan, including a mortgage, if the loan is about to default or if the bank is accelerating foreclosure proceedings. At this stage the bank has the ability only to demand the payment; no one can force you. The bank may also refuse any installment payments you attempt to make on the account. This is a signal that your bank is prepared to write your loan off as a bad debt or is seeking to take possession of your home.
Judicial Foreclosure Proceedings
A traditional mortgage requires your bank to obtain a court order to legally take possession of the property. All the bank must show at a foreclosure hearing is your delinquency. If the court rules in favor of your lender, you are issued a notice to make payment of your mortgage in full within a short amount of time -- usually 30 to 90 days -- or lose possession of your home. The bank is free to auction off your home to the highest bidder once this period expires.
Non-Judicial Foreclosure
A deed of trust empowers the lender to enact foreclosure proceedings without the need of a court order. Your bank has the right to demand payment in full for your mortgage when you default on this type of loan. The bank is usually required to give you 90 days to make payment in full before contacting the deed holder to schedule a trustee sale of the property. You are not forced to make payment in full, but if you don't, you lose your home.
Contacting Your Lender
It's important to contact your bank immediately upon receiving a demand for payment in full. Your bank has complete control over when it chooses to write off your long-term loan as a bad debt. Informing your lender of your financial situation may go a long way to staving off that day. You may also be able to make payment arrangements with your bank to bring the loan current without the overwhelming task of paying off the entire balance at once.
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