There's a lot of joy associated with moving into a new home. There's a lot of responsibility too, including that unpleasant business of paying for the property. Promissory notes are one of the contracts you may sign with a lender. As the name implies, it's a promise that you'll make the payments as scheduled. If you don't, the lender could make you a former homeowner.
The promissory note includes all your payment terms. First, it tells you the payment due date. It will also indicate the grace period, typically 10 to 15 days. This means if the payment is due on the first of every month with a 10-day grace period, you are not considered late until the 11th day of the month. The note will also tell you the amount of the late charge. If your payment is $500, and the late charge is 5 percent, the lender is expecting $525 from you that month.
An occasional late payment won't raise a red flag. If you're often late, but make your payments a few days after the grace period, you will wake up the collections department. You will be considered a “slow pay," a borrower who pays late often but is not seriously delinquent. The real problems start when your payments are more than 30 days late. The lender reports that kind of delinquency to credit bureaus. If this is a constant problem, you may need to work with the collections department on some kind of payment modification.
The lender can also declare your loan in default once its 30 days past due. If you have a good paying history, and propose some solutions or payment plans, the lender may give you a break and delay such action. However, if you don’t pay and the lender never hears why, the lender without any contact, the default option is the lender's next best move. Legally, it means you haven't lived up to the terms of the note. The bank can institute a default rate higher than the contract rate. It can also issue a demand letter that requires the loan be repaid in full -- immediately. In most cases, the defaulted borrower won’t be able to do that. The lender will then take legal action.
Once the lender declares default, it can pursue the collateral securing the note. The foreclosure process varies by state, usually in the type of notices sent and the time the process takes from start to finish. The lender will file a notice with the state’s judicial system. You will receive a letter that gives you a period of time, usually 30 days, to repay the loan to avoid foreclosure. If you do not make the payment, your property will be sold at an auction to the highest bidder.