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How to Avoid Defaulting on a Hard Money Loan

By October 13, 2021June 23rd, 2023Blog, Hard Money Loans
Hard Money Lender in Los Angeles

Hard money loans can be an effective financing tool for real estate investors, home flippers, and other borrowers. However, a hard money loan is generally only helpful when used properly and with a clear understanding of what needs to be done to service the loan. Hence, it’s imperative, prior to obtaining a hard money loan in Los Angeles, to understand the serious consequences that can arise if you default on the loan.

When one obtains a hard money loan, they have an obligation to make monthly interest payments directly to the hard money lender.If they fail to make the required monthly interest payments, the loan will go into default.

The specific details and terms of what exactly constitutes a “default” will be based on the loan documents signed at closing. The default status is usually triggered by a breach of contract or lack of payment. It is important to note that missing even just one monthly interest payment or partially missing a payment will likely put you in default.

Consequences of Default

If you default on a hard money loan, you run the risk of having your newly purchased property seized and eventually sold to another party. This is because, in the event of a default, the hard money lender has the right to seize and sell the collateral property, using the proceeds to pay off the outstanding loan and any unpaid interest.

In addition to potential seizure and sale, many hard money lenders have what is called a “default rate” written into the contract stating once a borrower is in default, they are then obligated to pay a higher interest rate.

Along with having to pay a higher interest rate, a default will likely impact your credit score. This is significant because a lowered credit score will make it more difficult to secure financing in the future from other lenders.

How to Avoid Default

To avoid a default on your hard money loan, the key is to pay the monthly interest payments on time. If you wind up missing a payment, terms in the loan agreement typically include a 30-day window to make up the deficit before the property enters default status. Make sure to correct the default and get the payment issued before the 30-day window closes.

Have Questions? Contact the Leading Hard Money Lender in Los Angeles Today!

If you have questions about hard money loans or any other issues associated with hard money loans, PB Financial Group is here to help. PB Financial Group is a premier direct hard money, private money, and bridge lender, who has been providing quick funding since 2006 and have funded over 2700 hard money/private money loans. Our objective is to work to satisfy your financing needs on important real estate projects throughout California in an efficient and effective manner. To learn more about how to finance your next real estate venture, please contact PB Financial Group, at 877.700.3707 to schedule a consultation or visit to learn more.

PB Financial NMLS #357614/DRE #01522495

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