November 19, 2019
Sometimes, despite the best of intentions, a borrower runs into financial troubles. Perhaps a fix and flip takes longer than expected to sell or a contractor goes under. Such loans might go into default.
A lender places a loan into default for a number of reasons. Common problems include borrowers failing to make payments or the loan maturing and borrowers being unable to repay loan balances. A borrower will typically have 30 days to make a payment before a lender will call him in default. If the borrower doesn’t make a payment within 60 days, the lender will post to foreclose on the loan. Because of this, default interest will start accruing. If the borrower resumes payments (making up any past due amounts) or pays off the loan, the lender may move the loan out of default.
When Loan Repayment Problems Continue
If the borrower does not resume payments and 60 days go by, the interest rate on the loan may increase to a default interest rate (rate determined state to state) according to the terms of the loan contract. For most borrowers, they’ll see an increase in the interest rate from 12% to 18%. In addition, the lender forecloses on the loan, and the borrower will receive a letter from the lender’s attorney advising them of this. Additionally, once a loan becomes a problem loan, certain regulatory and lender policies kick in to strictly govern how lenders handle these accounts.
How a Maturity Default is Different
A maturity default is a special kind of troubled loan. Private lenders may see many causes of problem loans, but among the most common is something going wrong towards the end of the loan, such as a property not selling.
Whatever the problem is, it keeps the borrower from making the final payment that fulfills the loan. As such, these borrowers don’t typically have enough cash on hand to cover that expense. This results in a default on a loan that, until then, had been repaid faithfully and according to the terms of the loan contract.
In this case, a borrower may turn to the lender for help in resolving a maturity default. The borrower may ask the lender to extend the “expiration date” of the loan. Bay Mountain Capital is willing to consider this solution for qualified borrowers for a fee.
When facing a maturity default, the best thing for a borrower to do is to reach out to Bay Mountain Capital as soon as you know there’s going to be a problem. Communicating with us frequently is key, so that when a problem arises, we have the full knowledge to help you make the right decisions.
Why Troubled Loans Exist
Marking a loan as a problem can appear harsh but it’s in the best interests of the borrower and the lender, even if it’s hard to see it that way when it happens to you. Picking up on the early warning signs of problem loans and flagging them because of missed payments sets in motion a process that gives your account extra attention from your lender. The goal is an early intervention that staves off losses on both sides, leaving recoverable assets. If not addressed, a problem loan can cause future financial headaches for the borrower through ruined credit and for the lender with a poorly rated portfolio and no cash to continue making loans to new borrowers.
At Bay Mountain Capital, the preferred method of resolving problem loans is not foreclosure; it’s working together with qualified borrowers to ensure a loan is successfully paid off. Contact Bay Mountain Capital today to work with a private lending solution that values communication and transparency.
About Bay Mountain Capital:
Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans. We specialize in financing all types of residential and commercial property investments throughout Texas and Georgia. Using common sense and value-added approach, we strive to incorporate these principles into our underwriting and closing processes.
As a direct lender, Bay Mountain Capital can close a loan within one day after receiving a complete file and clear title. The process generally takes two weeks for a residential loan but can be accelerated where circumstances require it.
We are primarily an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.