Delinquency

In general, a delinquency is any time a borrower fails to make payments on a loan as stated in the original contract. Often, there is a grace period built into the loan, especially on mortgages. This allows borrowers to miss a payment or two without losing their home, as long as they make up the payments as quickly as possible. If the mortgage stays in delinquency for too long, the lender has the right to take action.

The common thought is that lenders will automatically start foreclosing on the house. However, this is often the last option lenders take, as foreclosure is an expensive process on which the lender will usually lose money. It is much more beneficial to keep homeowners in their homes, paying their mortgages.

Instead, lenders may offer solutions such as a forbearance, which allows borrowers to stop payments for a short time or pay less than their usual monthly amount until they are through whatever hardship they are dealing with.

Or, they may offer loan modifications or refinancing, which often lowers the monthly amount in exchange for a longer loan life -- and more interest collected by the lender.

If these are not favorable for either the lender or borrower, the bank may offer a short sale or a deed-in-lieu of foreclosure, which allows the homeowner to either sell or give up the home for less than it’s worth in order to erase the rest of the mortgage debt. It is when all other options are exhausted that lenders will usually turn to foreclosure.
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To avoid delinquency, it is important for potential home buyers to work with an experienced real estate agent find a house that they can afford.